What is a Spot Price?

Regardless of of the financial instrument that’s being traded (stocks, commodities, bonds, cryptocurrencies, etc.), the spot price (aka “cash price”) is the current momentary price at which the buyers and sellers are transacting with one another during a spot trade. At any given moment, the spot price is also regarded as the going rate or market price for an asset. It’s the price you’ll pay for the asset if you want it now (or the price you’ll sell the asset for if you want to sell it now).

When exchanging fiat currency for cryptocurrency, the spot price is the price of the cryptocurrency in fiat terms. For example, if, at the given moment, 1 Bitcoin (BTC) can be acquired for US$15,000, the US dollar amount is also the BTC’s current spot price.

In a world where fiat currencies are being exchanged with cryptocurrencies, and cryptocurrencies are being exchanged for other cryptocurrencies, it’s easy to ask why the spot price isn’t simply referred to as the exchange rate. After all, that’s the phraseology we use when exchanging fiat currencies for one another (such as US dollars for euros).

One reason for making the distinction is that, to the extent that spot prices are an important part of spot trading, trading professionals use the phrase “spot trades” to differentiate them from other trade types such as futures trades (involving derivative contracts) and margin trades. Distinguishing between the three types of trades is important since all three trade types occur in both currency and cryptocurrency markets. However, another reason for the importance of this distinction has to do with how it may impact regulatory jurisdiction. For the most part, spot trades are the jurisdiction of the US Securities and Exchange Commission (SEC). Meanwhile, the Commodity Futures Trade Commission (CFTC), which oversees swaps, derivatives and futures trading has a very limited jurisdiction over spot trading. One of the major questions has to do with which of the two agencies will have jurisdiction over spot trades of digital currencies. It’s a question that enterprises must consider because the answer may determine which agency’s regulations they’ll have to comply with.