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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated August 5, 2020

What is the Cash Price?

Also called the spot price or the current price, a cash price is the current price of a commodity if it were to be sold or purchased today.

How Does the Cash Price Work?

For example, if you purchase a cup of coffee in a restaurant, you pay the cash price -- the price of the good for immediate delivery.

Why Does the Cash Price Matter?

There is an important link between cash prices and futures prices for commodities, and the difference between the two -- that is, the difference between the price of coffee now and the price for delivery of coffee in, say, three months -- is called the basis. This time spread can be an economically important variable because it indicates the market's expectations about futures prices. For example, if people believe that coffee will sell for $40 a pound in three months, the price of a futures contract for delivery of coffee in three months cannot be $100; it will be more like $40, though the price for storing the coffee helps determine the relationships between futures prices and cash prices. In any case, futures prices for a given commodity generally converge toward the cash price as the delivery month of the futures contract approaches.

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