Spot Premium

AAA

DEFINITION of 'Spot Premium'

The money an investor pays to a broker in order to purchase a single payment options trading (SPOT) option. With a SPOT option (also called a binary option) the investor chooses the payout he wants and the market conditions he wants to occur in order to receive that payout. The broker then sets a premium for the option based on the probability of the investor's predictions occurring.

INVESTOPEDIA EXPLAINS 'Spot Premium'

The spot premium is usually a percentage of the payout. After the broker sets the premium, the investor can choose to go ahead and buy the option if she is satisfied with the price, or to decline if she thinks the price is too high. If the payout conditions do occur, the investor collects his payout. If they not occur, the investor will lose the spot premium. However, no matter what happens in the market, the most she can lose is the spot premium.

RELATED TERMS
  1. Forex - FX

    The market in which currencies are traded. The forex market is ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Spot Market

    1. A commodities or securities market in which goods are sold ...
  4. Spot Price

    The current price at which a particular security can be bought ...
  5. Spot Trade

    The purchase or sale of a foreign currency or commodity for immediate ...
  6. Payout

    The expected financial return from an investment over a given ...
Related Articles
  1. With SPOT or binary options, investors can set their own price and expiration date, giving them complete control over the transaction.
    Options & Futures

    Introduction to SPOT Options

  2. Forex

    What is the difference between trading ...

  3. Forex

    How is the forex spot rate calculated?

  4. Trading Strategies

    Why do futures' prices converge upon ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center