Spot contract
A spot contract is an agreement in which people exchange things like goods or services for money at a specific time and place. Imagine the following scenario:
You and your friend have a favorite ice cream shop that makes the best ice cream. You both wait all year for summer to come around just so you can go to this shop and buy your favorite ice cream. One day, you decide to make a deal with your friend; you agree to buy her favorite ice cream for $5. You both also agree to meet up at the ice cream shop at 2 PM.
This is an example of a spot contract: you are buying the ice cream on the spot, right then and there, for a set price. The exchange happens at the agreed time and place, and you both walk away happy with your purchase.
Businesses also use spot contracts, but instead of ice cream, they might exchange goods like grain, fuel, or metals. The spot price for these goods is the price that they are trading for at the specific time and place of the deal. It's like buying and selling things on the spot, just like how you bought your friend's ice cream.
You and your friend have a favorite ice cream shop that makes the best ice cream. You both wait all year for summer to come around just so you can go to this shop and buy your favorite ice cream. One day, you decide to make a deal with your friend; you agree to buy her favorite ice cream for $5. You both also agree to meet up at the ice cream shop at 2 PM.
This is an example of a spot contract: you are buying the ice cream on the spot, right then and there, for a set price. The exchange happens at the agreed time and place, and you both walk away happy with your purchase.
Businesses also use spot contracts, but instead of ice cream, they might exchange goods like grain, fuel, or metals. The spot price for these goods is the price that they are trading for at the specific time and place of the deal. It's like buying and selling things on the spot, just like how you bought your friend's ice cream.
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