Forward Rate vs. Spot Rate: What's the Difference?
A spot rate is the current market price at which a stock, bond, commodity, or currency can be purchased or sold. A forward rate or forward price is a price set in advance between a buyer and a seller for execution on a future date. The term has its origin in the commodities futures markets, where the spot rate is the agreed price for an immediate or "on the spot" transaction. There are small differences in terminology among markets: In the commodities markets, traders refer to the "forward price" instead of "forward rate" because it is the settlement price (not rate) of a transaction that will take place at a predetermined date. And, in the bond markets, the forward rate refers to the effective yield on a bond, commonly U.S. Treasury bills, and is calculated based on the relationship between interest rates and maturities. A spot rate or spot price is the real-time price quoted for the instant settlement of a contract. A spot rate in the commodities market indicates an immediate need fo
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