Commodity Futures 101: Learn How to Trade Commodity Futures
Ken Trester, April 17, 2009
Free Trading Guides
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Spot vs. Futures Prices
If you wanted to go out today and buy 5,000 ounces of silver, you would purchase it in what's called the spot market. But with a futures contract, you won't pay for the silver for months, or even years. You do, however, profit or lose just as if you owned 5,000 ounces of silver.
Because owners of silver, who would be the sellers of futures contracts, must pay for insurance, interest and storage (all referred to as "carrying costs"), the prices of futures contracts is usually higher than the spot price. The difference between these two prices is called the "basis." The basis for more distant futures contracts is usually wider than for near-term ones.
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