What are Spot Prices?

The spot price is the contract price reached by both parties to the transaction of the actual goods in accordance with the principle of fairness. It is the transaction price that buyers and sellers negotiate through one-to-one negotiation. Generally, due to the closed or semi-closed nature of spot transactions, the spot price is a regional price, and sometimes has a certain fraudulent monopoly. Moreover, it provides producers with a lagging price signal to regulate production, instead making production Has greater blindness and volatility. In a normal dynamic market, the futures price is the main factor affecting the spot price. This effect can be roughly summarized as the following formula:

Spot price

Right!

The spot price is the contract price reached by both parties to the transaction of the actual goods in accordance with the principle of fairness. It is the transaction price that buyers and sellers negotiate through one-to-one negotiation. Generally, due to the closed or semi-closed nature of spot transactions, the spot price is a regional price, and sometimes has a certain fraudulent monopoly. Moreover, it provides producers with a lagging price signal to regulate production, instead making production Has greater blindness and volatility. In a normal dynamic market, the futures price is the main factor affecting the spot price. This effect can be roughly summarized as the following formula:

Spot price = futures price-inventory cost ^[1]

Relationship with stock index futures prices

The stock index futures price is always based on the spot price of its own subject matter, and it is impossible to completely disassociate from the stock index spot price: in a positive market where the stock index futures price is higher than the stock index spot price, the stock index futures price will eventually fall to The level of the stock index spot price, or the stock index spot price will eventually rise to the level of the stock index futures price, and the two are combined into one. This is due to the decline in holding costs and the existence of a large amount of arbitrage between the stock spot market and the stock index futures market. If the spot market price of the stock index futures contract drops after the transaction of the stock index futures contract, and continues until the delivery month, the price of the stock index futures contract will also decline, and the decline is at least consistent with the decline in the stock index spot price. Otherwise, that is, when the stock index spot price declines, although the stock index futures price declines, but the magnitude is smaller than the decline in the stock index spot price, the current price spread of the stock index period will be greater than the holding cost, and the arbitrageur will sell the futures contract on the stock index futures market At the same time, buying spot stocks in the stock index spot market and holding them to sell in the delivery month of the futures contract, this arbitrage activity will continue until the stock index futures price declines with the decline in the spot price, at least as much as the decline in the stock index spot price. .

From this, we can draw a general conclusion: In the forward market, if the stock index spot price drops, the stock index futures price also declines, and because the stock index futures price is originally higher than the stock index spot price, the decline is even greater, until the delivery month stock index futures The price is consistent with the convergence of the stock index spot price. Similarly, in the forward market, if the stock spot price rises, the stock index futures price also rises, but the increase is smaller than the spot price. By the delivery month, the stock index futures price and the stock index spot price are combined into one.

If the stock index spot price is higher than the stock index futures price, then the contract price closer in the delivery month is higher than the contract price farther in the delivery month. We call this market a reversal market or a reverse market. The reason for this market is that the recent demand for stock cash is very urgent, much larger than the recent supply; at the same time, the supply of stock cash is expected to increase significantly in the future; in short, the emergence of the reverse market is due to the Demand is too urgent, and no matter how high the stock spot price is, it has caused the stock spot price to rise sharply. This price relationship does not mean that there is no cost of holding the spot. As long as the spot is held and stored for a certain period in the future, the cost of holding costs is essential. However, in the reverse market, due to the urgent market demand for spot and recent futures, buyers are willing to bear and absorb all the holding costs; in the reverse market, as time progresses, the stock index spot price and stock index futures price are the same As in the forward market, it will gradually approach convergence, and will converge to a consistent month.