Futures Price
Quoted price of a futures contract and the market input used to value, hedge, or settle future exposure.
The futures price is the quoted price of a futures contract for a specific underlying asset and delivery or settlement month. It is the exchange-traded price at which the contract can be bought or sold now, not a guaranteed forecast of the future spot price.
For a hedger, the futures price can lock in or offset a future purchase or sale price. For a trader, it is the entry or exit level for a leveraged position. For an analyst, it is a market-implied signal shaped by spot prices, financing, storage, expected income, convenience yield, liquidity, and contract rules.
Cost-of-Carry View
A simplified cost-of-carry expression is:
where:
- \(F\) is the futures price
- \(S\) is the spot price
- \(r\) is the financing or risk-free rate
- \(c\) is storage, insurance, or other carry cost
- \(y\) is income yield or convenience yield
- \(T\) is time to maturity
This model is a framework, not a mechanical answer for every market. Commodity futures can diverge from a simple carry model when inventories are tight, delivery capacity is scarce, credit is stressed, position limits bind, or the market is near a delivery window.
What The Futures Price Tells You
| Signal | Interpretation |
|---|---|
| Futures above spot | Often consistent with positive carry costs, contango, or expected future scarcity. |
| Futures below spot | Often consistent with backwardation, convenience yield, tight nearby supply, or strong demand for immediate availability. |
| Steep curve | Can indicate storage economics, seasonal demand, funding stress, or inventory pressure. |
| Converging price | Near expiration, futures and spot should tend to converge when delivery or cash-settlement mechanics work normally. |
| Wide basis | The hedge may not offset the exact cash-market exposure. |
The CFTC notes that futures markets support price discovery and risk transfer. See CFTC futures basics and its explainer on the economic purpose of futures markets.
Common Mistakes
- Treating the futures price as a forecast instead of a tradable market price.
- Ignoring contract month, delivery point, grade, and settlement rules.
- Comparing a futures price to the wrong cash-market quote.
- Forgetting that daily mark-to-market turns price movement into cash variation margin.
- Using front-month futures as a hedge for a later physical exposure without checking basis risk.
Related Terms
- Spot Price: Current cash-market price used as the starting point for carry analysis.
- Contango and Backwardation: Futures-curve shapes compared with spot or nearby futures.
- Convenience Yield: Benefit of holding the physical commodity.
- Basis Risk: Risk that futures and cash exposure do not move together.
- Mark to Market: Daily settlement process for futures gains and losses.