Definition: The current market price at which a particular commodity, such as electricity or natural gas, can be bought or sold for immediate delivery.
Key Components:
- Market Demand and Supply: Immediate availability influences spot prices.
- Trading Platforms: Markets where commodities are traded on the spot.
- Price Volatility: Spot prices can fluctuate rapidly due to market conditions.
Use Cases/Industries:
- Electricity Markets: Utilities purchasing power to meet immediate demand.
- Natural Gas Trading: Buying and selling gas for prompt delivery.
- Oil Markets: Transactions for immediate crude oil delivery.
Advantages:
- Market Transparency: Reflects real-time supply and demand.
- Flexibility: Allows buyers and sellers to respond to immediate needs.
- Price Discovery: Helps in determining the value of commodities.
Challenges:
- Price Volatility: Rapid changes can pose financial risks.
- Market Manipulation: Susceptible to price manipulation by dominant players.
- Liquidity Risks: Limited trading volumes can affect price stability.
Related Terms:
- Forward Price: Agreed-upon price for future delivery.
- Futures Contract: Standardized legal agreement to buy or sell at a predetermined price in the future.
- Day-Ahead Market: Market for trading electricity a day before delivery.
Example: During a heatwave, the spot price for electricity surged due to increased demand for air conditioning.
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Synonyms:
Cash Price, Current Market Price
