This blog explains what spot price means and how it works across different financial markets in India. It covers how spot prices are determined for equities, commodities and bonds, and compares them with strike and futures prices.
Quick Overview
- Spot prices change continuously as buyers and sellers interact
- Price discovery varies by asset class, with equities using order books, commodities using prescribed methodologies, and bonds using market transactions and valuation frameworks.
- Spot, strike and futures prices serve different purposes, even when they are linked to the same underlying asset.
When you start exploring financial markets, one of the first things you notice is that asset prices keep changing. A stock may be trading at ₹850 now and ₹865 a few minutes later. A commodity can move the same. But what exactly does the number displayed on your screen represent, and how does the market arrive at it?
The value you see at any given moment reflects what buyers and sellers are currently willing to transact at and is referred to as the spot price.
Understanding how spot price is discovered, how it works across different asset classes, and how it differs from other market prices can help you read about financial markets with greater clarity.
What is Spot Price?
The spot price is the current market price of an asset for immediate or near-immediate delivery. In India, it applies across markets such as equities, commodities, currencies, and bonds, although price discovery can differ across markets.
Spot prices are dynamic. They change as buyers and sellers enter the market, and their demand and supply interact. In India’s equity market, for example, exchanges such as NSE match orders based on price-time priority, allowing the market to continuously discover the price at which buyers and sellers are willing to transact.
The spot price gives you a current reference point for the underlying asset value. It also forms the basis for understanding derivatives such as futures and options, where the derivative value is linked to an underlying asset.
Knowing the spot price is one thing; understanding what happens when you actually buy or sell at that price is equally important.
How Does Spot Price Work?
When you place a buy or sell order in the cash market, the transaction is executed at the prevailing market price once the order is matched. The trade then moves through the clearing and settlement process, where you pay the funds, and the seller delivers the asset. In India’s equity market, the standard settlement cycle is T+1, although eligible securities can also be settled under the optional T+0 cycle.
However, calculation of the spot price varies across different asset classes.
How is Spot Price Calculated in India?
There is no single mechanism for arriving at a spot price; it is shaped by the trading structure and participants in each market:
- Government and corporate bonds
Government securities trade on the RBI’s NDS-OM platform, where prices are discovered through market transactions. FBIL publishes daily benchmark valuations and yield curves, while CCIL handles clearing and settlement. Corporate bonds, on the other hand, are largely traded over the counter (OTC), with valuations provided by SEBI-recognized rating agencies.
- Commodities (MCX/NCDEX)
For commodities, exchanges use SEBI-approved methodologies to arrive at spot and settlement of reference prices. This typically involves collecting price quotes from market participants. For agricultural commodities, these quotes may come from key mandis, while bullion and metals draw inputs from major trading centers. For domestic metals, import duties also influence the prevailing price.
- Equity markets
For equities, spot prices are discovered through the exchange order book, where buy and sell orders are matched based on price-time priority. Market depth, the volume of buy and sell orders available at different price levels, helps indicate the strength of demand and supply and can influence how quickly the traded price moves.
While the spot market deals with the asset’s current price, traders also use other market instruments where different pricing concepts come into play.
Spot Price vs Strike Price Vs Futures Price
Spot, strike and futures prices may all relate to the same underlying asset, but they serve very different purposes in the market.
| Parameter | Spot price | Strike price | Futures price |
| Core definition | The current market price of an asset for immediate delivery | The predetermined price at which an option holder can buy (call) or sell (put) the underlying asset | The price agreed today for buying or selling an asset on a fixed future date |
| Asset class context | Applies to equities, bullion and physical commodities. Commodity exchanges may publish spot prices as reference prices | Applies to options contracts on equities, indices, commodities, etc. | Applies to futures on indices, stocks, commodities, currencies and interest rates |
| Price determination | Driven by supply and demand in the spot market. For commodities, factors such as local premiums, logistics and import duties can also matter | Strike prices are standardized by exchanges and available at predetermined intervals. New strikes may be added as the underlying price moves | Determined through exchange trading and generally reflects the spot price plus the relevant cost of carry |
| Expiry & convergence | No expiry. The price keeps changing as the market trades | The strike remains fixed throughout the option contract and until expiry | Futures expire on a designated date, with the futures price converging towards the spot price at expiry. |
Example of Spot Price in India
Suppose ABC Ltd. is trading at ₹850 per share on the NSE. This ₹850 is the stock’s spot price, or its current market price in the cash market. If you place a buy order at the prevailing market price and it gets matched, you purchase the shares at the available market price. If strong buying demand pushes ABC Ltd.’s price to ₹875, its spot price also moves to ₹875. The price can keep changing throughout the trading session as buy and sell orders enter the market.
Conclusion
The price displayed on a financial market screen is not always telling you the same thing. The spot price tells you what the underlying asset is currently worth in the market, while the strike price and futures price relate to specific derivative contracts and their terms.
To understand these differences, focus on what is being priced and what type of market or contract is involved. Once these three points are clear, it becomes easier to understand how pricing works across both cash and derivatives markets.
