8 powerful points outlining the dynamics between spot Vs futures prices

8 powerful points outlining the dynamics between spot Vs futures prices.

What we’ll be covering:

  1. Difference in timing
  2. Impact of carry costs and convenience yield
  3. Hedging vs. speculation
  4. Price convergence (spot and futures)
  5. Liquidity and trading strategy
  6. Basis risk
  7. Arbitrage opportunities
  8. Influence of market news and events

 

A relatively innocent question from a junior dealer yesterday showed how necessary it is for all of us involved in the financial services, to understand how the markets work so we can serve our clients better.

The question related to whether the quotation on an asset provided to clients was derived from futures or spot liquidity and why the answer is important. It gave us a reason to outline 8 powerful points that outline their dynamic relationship, that reflects different aspects of the market. These aspects can influence trading decisions, risk management, and overall strategy.

 

Difference in timing

  • Spot price: The spot price is the current market price for immediate delivery of the asset. It’s the price you would pay if you bought or sold the asset right now (on the spot). For example, if you’re trading the spot price of gold, it reflects the price you’d pay for physical delivery of gold today.
  • Futures price: The futures price is the agreed-upon price for buying or selling the asset at a specified date in the future. Futures contracts allow traders to lock in a price today for a transaction that will take place later (often months down the line).

Why it matters: Traders need to understand this difference to manage timing risk. The spot price changes instantly based on current market conditions, while futures prices reflect expectations about where the market will go in the future. For traders holding positions over time, the futures price is more relevant, whereas spot price trading applies to immediate, short-term trades.

 

Impact of carry costs and convenience yield

Futures prices often incorporate inherent costs that can be expensive or cheap, causing the futures price to be higher or lower than the spot price, depending on whether the market is in contango (futures price is higher) or backwardation (futures price is lower).

  • costs of carry (such as storage fees, financing costs, or dividends that will be paid in the future)
  • convenience yield (for commodities, this is the benefit of holding the physical asset).

Why it matters: Traders need to understand these factors to assess whether the futures market is pricing in more expensive holding costs or is reflecting supply/demand imbalances that make future delivery more or less valuable than immediate delivery.

 

Hedging vs. speculation

  • Hedging: Traders use futures prices to hedge against price fluctuations in the underlying asset. For example, a farmer might sell futures contracts for wheat to lock in a selling price for their crop months before harvest. The spot price doesn’t help with hedging because it reflects the current price of wheat, while the futures price locks in the price for future delivery.
  • Speculation: Traders looking to speculate on price movements often trade futures contracts in hopes that they can profit from price changes. If they’re only looking for short-term movements, they may focus on the spot price.

Why it matters: Hedgers attempt to mitigate uncertainty seeking insurance against future price fluctuations by transferring the price risk to speculators. Speculators place bets to capture price swing opportunities adding liquidity volumes. Current spot and future prices reflect the market sentiment in real time, so being aware of where they both stand speaks volumes.

 

Price convergence (spot and futures)

Spot and future prices are always different. Under normal conditions, futures price is higher than spot known as contango, and at times they reverse known as backwardation.

But as a futures contract approaches its expiration date, the futures price tends to converge with the spot price. This process is known as convergence.

At expiration, the futures price and spot price should be nearly identical for the same asset.

Why it matters: The dynamics between futures and spot prices are in constant push-pull mode. Different economic environments (or seasons for agricultural contracts), can shock both prices. During convergence, prices might or might not behave as predicted (disconnection) yet its still a big element when trading either side.

 

Liquidity and trading strategy

  • Spot Markets: In some cases, the spot market may have more liquidity, especially for highly traded assets like currencies and major commodities. Traders in the spot market typically aim for immediate price movements and often make quicker, short-term trades.
  • Futures Markets: Futures contracts may offer greater liquidity for certain assets, especially for hedgers or speculators seeking to manage longer-term exposure or leverage.

Why it matters: Understanding whether you’re trading in the spot or futures market helps you design a trading strategy that matches the available liquidity, your time horizon, and the level of leverage you’re willing to take on.

 

Basis risk

This is the risk that arises from the difference between the spot price and futures price (called the “basis”). Traders who hedge with futures contracts face the risk that the futures price and the spot price may not move in perfect correlation. For example, a trader might sell a futures contract to hedge against a falling price, but if the futures price and spot price diverge unexpectedly, the hedge could be ineffective.

Why it matters: Traders need to understand how the basis works because the discrepancy between the spot and futures prices can affect their ability to properly hedge or make the most out of a position.

 

Arbitrage opportunities

Traders looking to exploit arbitrage opportunities rely on the price discrepancy between the spot and futures markets. If there’s a mismatch between the spot and futures prices (e.g., futures are priced too high or too low relative to the spot), arbitrage traders can execute strategies to ride the difference by buying the underpriced asset and selling the overpriced one.

Why it matters: Spot and futures prices can sometimes diverge significantly in markets with inefficiencies. Traders who are looking for arbitrage opportunities need to recognize when the price difference is large enough to make the trade profitable. For all the rest, large enough price differences signal arbitrage trading influx to be expected.

 

Influence of market news and events

  • Spot Prices: Spot prices are directly affected by real-time market news such as supply disruptions, weather events, geopolitical news, that causes immediate price changes.
  • Futures Prices: Futures prices reflect expectations about how news and events will affect future prices, which can lead to price movements based on predictions or forecasts.

Why it matters: Traders need to understand how to react to market-moving news based on whether they’re trading spot or futures prices. Spot price trading requires quick reactions to real-time events, while futures price trading may require more analysis and interpretation of future market expectations.

 

Our 20 year visibility in the space taught us that education is important, but without awareness it is not enough. Terms and definitions should be accompanied by an understanding of why things work, but also why they don’t. And although there is no consistent 100% accuracy in predicting what will happen next, everyday carries new lessons to be carried forward. Understanding spot vs futures dynamics is yet another important milestone in our trading travels.

*this article is provided for educational purposes only. It is not to be construed as investment advice and all visitors are encouraged to keep learning while understanding that trading is exciting but also carries unlimited risk. Lets all be responsible investors to make the most out of the experience.

 

In sales, there are loser-winners and there are loser-losers

On a sales call/meeting, there are loser-winners and there are loser-losers. We’ve been both, and we learned the lesson the hard way.

 

Sales is a game that’s played in multiple rounds. Like with board games, not every round is positive for our advance to the endgame. Losing a round, in no way implies we lost the game.

 

Losing a round can either be messy or graceful. Opting for the latter, is what differentiates loser-winners, from loser-losers.

 

We can’t recover from a messy loss. It’s usually the result of uneducated sales processes, detachment from the product/service we sell, more push to our agenda than prospect discovery, aggressive pitches and empty promises that don’t lead anywhere.

 

How can we lose gracefully? We start by expecting/accepting the possibility of a loss.

 

Expecting that not everyone is positioned to accept our product/service is the first step. Our job in sales, is to calibrate the prospect into accepting our product/service. The faster the better, but it doesn’t have to be today. In many cases, this calibration is done by the company’s marketing efforts. Sales in these cases are immediate, even automatic with no real handling.

 

In every other case, the prospects’ mind is nowhere near where you need it to be, to close the sale. If you have no need for a new TV, then you’re not open to discuss about TVs, or buy another one for that matter.

 

A loser-loser’s mindset can’t accept that prospects are not ready to buy. With no relationship buildup, no prospect calibration and no reason to be heard, the push is unconditional and prospects shut down with no turning back.

 

Be a loser in your own terms, and you will never lose a sale.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

In sales, there is no such thing as playing dress up. Or is there?

On a sales call/meeting, there is no such thing as playing dress up. A good product/service will always be good and a bad one, will always be bad. Or is it?

 

Dressing our product/service with tactics like building rapport, transparent frameworks, emotional impact and handling objections, don’t make it a good product/service.

 

We’re strong advocates of all that encompass sales including all of the above, as long as they complement a “good product”. But the product is what it is, and we still have to sell it. What if it’s not a good product?

 

“Good” is a subjective term. Every person defines things, people, emotions as “good” or “bad” based on preference. Based on taste. What’s good for one person, might be bad for another.

 

Accepting a position as a sales rep, comes with only one requirement. A buy-into the product/service so we can remove labels of “good” and “bad” from the situation. There’s no better time than the early days, to do a thorough due diligence:

 

  • Learn all about the company and its products/services
  • Understand the industry as a whole
  • Follow the company’s online history (no surprise is a good surprise)
  • Find the value and the added-value (comparatively) of the product/service we’ll sell
  • Buy into the product/service and into the workload that comes with promoting it

 

If we’re still of the opinion that the product/service is “bad”, should we really be in the front line selling it? We’ re not doing anyone a favour (including ourselves), to be promoting something we don’t have strong opinions of.

 

Secure your position with a “good” product/service, and you might never really have to sell again.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

In sales, a “contract” is struck before exchanging information

On a sales call/meeting, a “contract” is struck before exchanging information. It’s not a legally binding contract, but it’s as important (or even more).

 

Clauses of this contract can include permission to take the prospect’s time, openly laying our cards on the table, acceptance of negative feedback, respecting the rules of engagement and more.

 

And all of the above, just to get the conversation started – how is it even possible?

 

Sales in its core is a game. Can you play a game, without agreeing to its set of rules? Without rules, stakes are high, confrontations take more time than playing the game itself, it turns into being our word against our opponent’s word.

 

A “contract” is required to create a low-pressure environment since both parties understand the rules of the game, they know each other’s intentions and they have a clear exit plan (“I need 30 seconds to explain why I’m calling, if not relevant, I’ll be on my way”), should things go south.

 

Sales come with ulterior motives (not referring to dishonest ones). Disarming the fight or flight mode of prospects is our number one priority.

 

Prospects have no reason to disarm. Their natural defense is to just not engage.

 

Consider this funnel:

 

  • The “contract”. Politeness, gratitude, appreciation, humour, can all work in our favour when laying our cards on the table.
  • The conversation. Less is more when not enough information is provided. We can be more active in getting this information, than pushing our agenda.
  • The challenge. Picture an environment where our product/service is not around. Problems can’t be solved, pains persist, prospects get left behind, opportunities are lost.

 

A successful result doesn’t mean we hang up our boots.

 

Buyer’s remorse is more common than we think. It’s in our nature to second guess every time we part with our money. Post sale service can be more valuable than getting new customers sometimes.

Retention is not a tool that jumps in out of nowhere. It’s part of the process.

Secure the invisible handshake early on. Trial and error will fine tune the rest.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

Prospect ghosting – what’s going on here?

On a sales call/meeting, we can be well on our way to a close, and then the dreaded “ghosting” happens.

What’s going on here?

For sales reps, the thrill of a great conversation can many times, feel better than a closed sale. That’s because the possibilities are endless to where the deal could go, and most of the work has already been done.

Appointments are set, action items are locked in, the follow up time is there, but the prospect is nowhere to be found.

Here’s the catch;

A good conversation most of the times is full of buying signals. If we don’t capitalize on these signals on the spot, chances of a close will start thinning out fast.

Outside our conversation, prospects have one-too-many options to consider. We just sold them the pain, the solution to this pain but not our product.

When the call ends, this great conversation will be discussed with other people who also have an opinion on the matter. They might say things like “hold on, I know a guy that knows a guy, that works for a company that knows a company, that can do this a lot cheaper and better”.

And before we know it, our prospects end up buying elsewhere, a cheaper but definitely not better product/service, and we haven’t done anyone a favor. We set our prospects on a path of bad service that will deter them from ever looking at their pain the same way again.

It wasn’t our fault that they chose a different/cheaper solution and got themselves in a mess. But it was definitely our fault that we didn’t:

  • Read the buying signals
  • Capitalize on them
  • Set a fearless closing in motion before our chances thin out

 

“Fearless” doesn’t mean extravagant or aggressive sales. It means:

  • Value our time spent to outline a pain
  • Value our time spent to outline the solution to the pain
  • Removing the “threat” of saying yes, with a sensible win-win value proposition

 

We have more winning chances if we create them ourselves, instead of leaving them to chance.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

Controlling the narrative – there can be only one leader

On a sales call/meeting, there can be only one leader. If we don’t take control, it will be taken from us and the rest is history.

Prospects are emotional creatures. We’re all prospects for someone, so we can relate to the emotions that are being channeled through the other side of the conversation. And as such, we don’t like being bullied into decision making, but we also choose to ignore weak positions of people who can’t stand their ground or have no thoughts of their own.

To have thoughts/opinions, renders us knowledgeable and up to date with current challenges and solutions. Our thoughts can be confronted, and that’s the beauty of it. If prospects become confrontational, they are by default engaged and we have won half the battle.

We’ve won because everyone is ready to jump on the opportunity to prove us wrong, and no one is ready to admit we’re right. Both cases open a door that will prove so important going forward, that a simple sale (even though successful) will mean very little.

This door holds a new relationship built on mutual understandings, common grounds, shared beliefs, open communication, respect and accountability. It elevates both sides to a level of commitment, far from corporate names and marketing gimmicks.

Challenging a prospect should be part of any call. The first call, the second, and all the relentless follow ups until the decision making. Yet, reps don’t challenge/provoke enough to ascertain strength.

How to challenge? Never arrogantly, and almost always by asking questions. Questions that allow us to control the narrative and gain the necessary authority. Authority is earned. It cannot be demanded.

If we ask the right questions, we will get the right answers and the conversation can lead to gaining authority. If we ask the wrong questions, we will get the wrong answers and we will both end up rambling. Fighting for authority past this point is futile.

Controlling the narrative is binary. It either puts the buyer in our sales process, or us in the buyer’s buying process.

There can be only one winner.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

In sales, fear and hesitation are usually personal stemming from our training

On a sales call/meeting, fear and hesitation are usually personal, and both stem from weak self-discovery during our training/probation period.

Occasionally, reps can overcome gaps created during probation, but as the workload grows combined with a disengaged audience, the clock starts ticking backwards.

Prospects smell fear & although they might tolerate it, they penalize it by being unreceptive, passive, aggressive, full of objections and worse, rejection.

All of the above are manageable on their own, but not if we’re overrun by FEAR.

What fuels fear and hesitation? Here’s a quick breakdown:

Failure 

Without failure we don’t evolve. We should be searching for failure, not be afraid of it.

  • Failure lights up our weak spots, it’s a better teacher than the most expensive universities.
  • Failure should not put us down, or stop us from pushing harder.

Rejection

With real effort, we’re going to get rejections. It comes with the role and it should never get personal.

  • Rejection can recalibrate us, ground our push & help us learn from our mistakes.
  • Rejection should not dictate our emotions, or our willingness to continue.

Performance

Sales positions are always accompanied by hovering targets. If targets become the reason we sell, any success is short lived.

  • Targets can help us prioritize, maximize efforts & maintain the feeling of urgency.
  • Targets should not dictate our approach or our conversations.

Labels

Some sales reps are on top of their game, while others do it for all the wrong reasons. This negative stigma, can stain everyone’s efforts i.e. “sales reps are dishonest, pushy, insincere.”

  • Labels are there to be proven wrong, and if we do our job well, they can be rewritten in our image.
  • Labels don’t define anyone. Our work defines us and gives back the relevant results.

Training

When soldiers are uncomfortable during operations, they trust their training to get them through.

  • Proper training takes 80% credit for our success. Contrary to popular belief “if the person has it in them, they will succeed”, numbers speak louder than words.
  • Incorrect training burns time, leads, clients. It discourages, internalizes failures and hinders growth.

Character

There’s an inert discomfort while selling, relative to whom we’re selling to, and also who’s in the room listening in to our work.

  • Sales are all about spreading the word of the product we already bought into, and how it can solve pains, problems, add value.
  • Sales are not about us, they are not about our prospect, and they’re definitely not about the people listening in while we pitch.

There’s no bypassing fear. The only way around it, is through. It may be as simple as dealing with only one of the points above, or as complicated as all of them and then some.

Self-discovery is about finding our own pains, and working to resolve them.

Only be afraid of being afraid. Everything else will follow.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

A good sales bet? Sell as if we’re selling the product/service to ourselves.

On a sales call/meeting, all bets are on. A good sales bet? Sell as if we’re selling the product/service to ourselves.

If we are not convinced to buy our own product, why would anyone else be?

In every other conversation, we do exactly that. Whether discussing politics, social, with our inner circle, casual, formal, business or other, our strong opinions reflect our personality and our belief in what we consider true.

If we don’t have a strong opinion, we normally concede or stay quiet. Conceding or staying quiet in sales is not an option.

We are the first and last defense of a product/service so valuable that:

1. It solves painful problems, whether superficial or deep
2. It compliments existing solutions and adds value through competitive advantages
3. It boosts growth (potential and realized growth)

Before creating our script, we should ask ourselves:

👉What pains does my product/service solve?
– Start by the abstract/superficial pains and dig deeper to find the serious ones.
– Do we relate with these pains?
– Make them personal and challenge our product/service to solve them all.

👉What added value does my product/service provide?
– Start by looking at similar providers and what they offer. Compare our product/service to theirs and find our advantage.
– If there is none, discuss our value proposition with the management. Find true value and not regurgitated online material.
– Don’t stop until we personally (not the company) buy into this value.

👉How does my product/service encourage growth?
– Start by picturing an environment where our product/service is NOT available.
– The pains discovered above and the added value, are all real and they are now also personal. If they are not solved, we miss valuable opportunities, we concede to weaker options, we stay behind.
– This is the opposite of growth. Would we knowingly not choose growth over stagnation?

💡We bought into our product? Why keep this knowledge to ourselves?

Instead of looking at sales as the repeating chore we have to do day-in-day-out, the purpose becomes clearer. It’s about sharing this discovery, with the intention to inform, educate & support others who just don’t know about it yet.

Don’t sell. Reach out to as many #prospects as you can, and spread the love❤️.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

Seconds to determine if we close on the spot, or continue with follow ups.

On a sales call/meeting, we have seconds to determine if we’ll get a close on the spot, or fix the agenda for further follow ups.

Too soon and we get nothing. Too late and we get less than optimal results.
To make things worse, targets cloud judgements and the line blurs even more.

So, what do we do?

To begin with, here’s the hat-trick mindset of winners:

Paint the right picture – the prospect willing to close today, will do so if the right conditions are met (we’ll get to these conditions in a second).
Accept to lose the battle but never the war – the correct #relationship with a prospect, will feed #targets for longer. Pushing to close today, will destroy tomorrow’s opportunities.
Realize that today’s win, won’t be there tomorrow but targets will – Build the relationship, and gauge the possibilities. If it’s there, go for it. If not, live to fight another day.

What conditions must be met for the prospect to buy (today or later)?

  • Our product/service is in line with the prospect’s needs.
  • Our product/service is better than what the prospect is currently using.
  • Not using our product/service is causing some type of “loss”
  • Risk factors are minimal to non-existent, mainly because of the relationship we have built.

Experienced prospects don’t need much to make a decision if their conditions are met. New comers might need that extra TLC to see how they fit in the picture.

Different people, have different standards. For some, assessing risk is number one while for others, the fear of missing out is enough to take a leap of faith. Are we worth taking that leap of faith with?

Nothing beats a properly structured pitch. One that engages, informs, picks up from where it left off prior and finally resonates in an unscripted and mechanical way.

It takes practice – We won’t get it right the first time. We won’t get it right the second time. With practice, we will definitely get there and that’s all that matters.

Keep your eyes on the prize. And it’s not today’s payout.

It’s getting the pitch right consistently…

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.

We interview our prospects and we are being interviewed every time

On a sales call/meeting, we interview our prospects and we are being interviewed every single time.

Which side of the table are you sitting at? And does it really matter?

Here’s the thing. There’s a nervousness clouding every sales attempt. It’s unavoidable but manageable.

This nervousness kickstarts our defense mechanisms, and instead of prepping the ground to listen (which is what better sales people do), we prep the ground to talk – so we can be vetted.

We are inevitably prepping the ground to be interviewed. This is followed by a more passive/reactive attempt that hardly ticks any of the sales mechanics, and we end up answering questions instead of asking them.

Do we leave room to find out:

How our product/service fits into the prospect’s current environment?
If they already have what we offer, and what they are missing from the solution?
What their biggest pain points are?
If there are budgets in place for what we’re promoting?

How easy do you find your way, with your eyes closed?
How do you hear the music, with your ears covered?
How can you navigate a conversation, when you don’t have enough information?

Just like that – the tables turn. Our mindset from an interviewee is turned into an interviewer.
Just like that – the nervousness, awkwardness, uncertainty, all disappear.
Just like that – confidence, security, attention, all kick in.
Just like that – the prospect is the one being vetted.

Bottom line:

It’s not about you. And it’s not about the prospect.

It’s about the results that you can help them realize.
It’s about the progress you can help them achieve, and how fast you can get them there.

Take a breather and start again.

 

Through a series of highly targeted training sessions, allFX-Consult provides a holistic Growth Training that aims fix what’s broken in conversations with leads and clients. The world is in constant motion, and this motion changes the way we perceive people, products and services. It not only changes our perception as buyers, but also as sellers. This relationship is dynamic and requires education and awareness on top of a solid framework. Check out the training modules of Mindset, Performance, Markets and Industry Essentials in detail here.