Editing Spot contract (section)

== Spot prices and future price expectations ==
Depending on the item being traded, spot prices can indicate market expectations of future price movements in different ways. For a security or non-perishable [[commodity]] (e.g. silver), the spot price reflects market expectations of future price movements. In theory, the difference in spot and forward prices should be equal to the finance charges, plus any earnings due to the holder of the security, according to the [[cost of carry]] model.  For example, on a [[share (finance)|share]] the difference in price between the spot and forward is usually accounted for almost entirely by any [[dividend]]s payable in the period minus the interest payable on the purchase price. Any other cost price would yield an [[arbitrage]] opportunity and riskless profit (see [[rational pricing]] for the arbitrage mechanics).

In contrast, a perishable or [[soft commodity]] does not allow this arbitrage – the cost of storage is effectively higher than the expected future price of the commodity. As a result, spot prices will reflect current supply and demand, not future price movements. Spot prices can therefore be quite volatile and move independently from forward prices. According to the unbiased forward hypothesis, the difference between these prices will equal the expected price change of the commodity over the period.