# Spot vs Futures > Spot is the price for immediate delivery; futures price delivery later. Learn the cost of carry formula, why futures trade above or below spot and convergence. Source: https://learn.tradelabsai.com/futures/spot-vs-futures/ Track: Futures · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Spot vs Futures", https://learn.tradelabsai.com/futures/spot-vs-futures/ The spot price is the price for buying or selling an asset for immediate delivery. A futures price is the price agreed today for delivery at a future date. The two are linked: arbitrage keeps futures prices close to what it would cost to buy the asset today and hold it until the futures date. That link, known as the cost of carry, explains why futures sometimes trade above spot, sometimes below, and why they converge as expiry approaches. ## The cost of carry model ``` futures price = spot price × e^((r + u - y) × T) ``` - **r:** financing (interest) rate - **u:** storage and insurance costs, as a rate - **y:** income from holding the asset (dividends, coupons, lease rates) plus any convenience yield - **T:** time to expiry in years In simple terms: futures price ≈ spot + cost of financing + cost of storage minus income from holding. ## Applying it to different assets | Asset | Carry components | Typical relationship | |---|---|---| | Stock index | Financing minus dividends | Futures above spot when rates exceed dividend yield | | Gold | Financing plus small storage, minus lease rate | Futures usually above spot | | Crude oil | Financing plus storage, minus convenience yield | Varies: often below spot when supply is tight | | Currencies | Interest rate difference between the two currencies | Depends on which currency has higher rates. See [Covered and Uncovered Interest Parity](https://learn.tradelabsai.com/forex/interest-rate-parity/) | | Bitcoin | Financing demand from leveraged longs | Usually above spot. See [Crypto Futures and Basis](https://learn.tradelabsai.com/crypto/crypto-futures-and-basis/) | **Example: Fair value of index futures** The S&P 500 is at 5,000. Interest rates are 5% and the dividend yield is 1.5%. For futures expiring in 3 months (T = 0.25): Fair value ≈ 5,000 × e^((0.05 minus 0.015) × 0.25) ≈ 5,000 × 1.00879 ≈ 5,043.9. Futures should trade about 44 points above spot. If they traded at 5,070, arbitrageurs could sell futures and buy the stocks, locking in the difference. If they traded at 5,020, the reverse. See [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/). ## Convenience yield For physical commodities, holding the actual stock has benefits that futures do not provide: a refinery with crude in its tanks can keep running during a supply disruption. This benefit is the convenience yield. When inventories are low and supplies tight, convenience yield rises, and futures can trade well below spot, which is called backwardation. See [Backwardation](https://learn.tradelabsai.com/futures/backwardation/) and [Storage and Inventories](https://learn.tradelabsai.com/commodities/storage-and-inventories/). ## Basis The difference between spot and futures prices is called the basis: ``` basis = spot price - futures price ``` Hedgers watch basis closely because a hedge is only as good as the relationship between the futures and the actual price they care about. See [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/). ## Convergence at expiry As expiry approaches, T shrinks, carry costs shrink, and the futures price converges towards spot. At expiry, cash settled futures settle to the spot reference, and physically settled futures converge because traders can deliver or take delivery. If they did not converge, arbitrage would be easy. *Figure: In contango, futures start above spot and converge to it by expiry.* ## Why spot and futures can diverge - **Storage limits:** when storage is full, futures can collapse below spot, as in April 2020 when WTI crude futures briefly traded negative. See [Crude Oil](https://learn.tradelabsai.com/commodities/crude-oil/). - **Shorting constraints** in the underlying. - **Funding stress:** when financing is scarce, arbitrage gaps widen. - **Crypto leverage demand** can push futures far above spot in bull markets. ## Frequently asked questions ### What is the difference between spot and futures prices? Spot is the price for immediate delivery; a futures price is the agreed price for delivery on a future date, adjusted for the costs and benefits of holding the asset until then. ### Why are futures prices higher than spot? Usually because of financing and storage costs. Futures can be lower when the asset pays income or has a high convenience yield, as with tight commodity supplies. ### Do futures prices converge to spot? Yes. As expiry approaches, carrying costs shrink and arbitrage forces the futures price towards the spot price. Next, learn what it means when futures trade above spot in [Contango](https://learn.tradelabsai.com/futures/contango/). ## Continue learning - Next lesson: [Contango](https://learn.tradelabsai.com/futures/contango/) - Previous lesson: [Stocks vs Futures](https://learn.tradelabsai.com/futures/stocks-vs-futures/) - Related: [Stocks vs Futures](https://learn.tradelabsai.com/futures/stocks-vs-futures/): Compare trading stocks and futures on leverage, costs, hours, shorting, taxes, expiry and risk, with worked numbers, to choose the right market for your plan. - Related: [Contango](https://learn.tradelabsai.com/futures/contango/): Contango is when later futures trade above nearer ones or spot. Learn why it happens, how it erodes long commodity and VIX funds, and how traders use it. - Related: [Backwardation](https://learn.tradelabsai.com/futures/backwardation/): Backwardation is when later futures trade below nearer ones or spot. Learn the causes, convenience yield, positive roll yield and what it signals about supply. - Related: [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/): Basis is the gap between a spot price and a futures price. Learn how hedgers manage basis risk, how basis trades work and the Treasury basis trade. - Related: [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/): Cash and carry arbitrage buys an asset and sells its futures when futures are rich versus carry costs. Learn the formula, gold, index and crypto examples, and risks. - Related: [Crypto Futures and Basis](https://learn.tradelabsai.com/crypto/crypto-futures-and-basis/): Dated crypto futures trade at a premium or discount to spot called the basis. Learn CME and exchange futures, how to annualise basis and what it tells traders.