Why Futures Don’t Track Spot Price: The Real Reasons Behind the Difference
If you’re confused why a futures contract trades at a different price than the spot market, you’re not alone. Futures don’t track spot price because the futures price reflects storage, interest, expiration, and market expectations—not just the current physical cost. This ties directly into fair value and the cost-of-carry model.
The Core Reason: Futures Price = Spot Price + Carry Costs − Carry Benefits
Futures are priced based on what it costs to hold or finance the underlying asset until expiration. That’s why futures often trade above or below spot—they’re not quoting the same thing.
| Factor | Effect on Futures Price |
|---|---|
| Interest rates | Push futures above spot |
| Storage costs | Push futures above spot |
| Dividends / yield | Push futures below spot |
| Convenience yield | Can push futures far below spot |
Why Futures Drift from Spot Over Time
Futures converge to spot at expiration, but before expiration they can be far apart. The shape of that drift depends on contango or backwardation.
Contango
- Futures above spot
- Prices fall toward spot as expiration approaches
Backwardation
- Futures below spot
- Prices rise toward spot at expiration
Liquidity and Volume Also Create Differences
Spot markets and futures markets don’t always have the same participants. Futures can move harder or faster because:
- Leverage amplifies participation
- Margin rules force entry/exit
- Large traders roll contracts early
- Spot markets may be closed while futures are open
This divergence often becomes obvious during rollover periods, when volume migrates to the next month and spreads blow out temporarily.
Futures Don’t Track Spot Tick-for-Tick
Spot markets can be slower, especially in commodities where actual transactions aren’t happening every second. Futures trade electronically and constantly, so futures react to news instantly and spot catches up later—or not at all.
Why You Should Care
Understanding why futures don’t track spot helps you avoid bad assumptions about pricing and volatility. It also explains why futures curve structure, carry costs, and expiration mechanics matter so much.
The Bottom Line
Futures don’t track spot price because futures reflect cost-of-carry, expectations, and time to expiration—not just current market value. If you understand these forces, you’ll understand why futures and spot diverge, converge, and behave differently on every move.