For those that are relatively new to the investing world, commodity spot prices are best explained as the price paid for a commodity that is purchased for immediate or exceptionally short term delivery. In trading terms the deal is concluded on the "spot" rather that futures trading where you are setting a price today for a commodity such as wheat that will be delivered once it has been harvested several months in the future. This type of trading has the advantage of actually receiving the goods that you are paying relatively quickly. You can then use them, resell them or stockpile them.

According to the markets, there are three basic products that are traded regularly using commodity trading prices, physical goods such as precious metals, livestock, grains and of course oil. These are what most people associate as being commodities and are something that most traders never actually see, they simply buy low and resell for a higher price. Most people are aware of the average gas prices, but don't realize the degree to which those prices are set by trading on the commodities markets. Other products sold this way include international currencies which can be a highly profitable market and securities.

You could be led to believe that because this type of pricing is bases on a spot sale that it would be a much more honest reflection of the actual value of a commodity. However this may not be the case as the lack of regulation covering the turnover rate for commodities makes it relatively simple for a trader to buy large quantities of a particular commodity and drive up the price on the spot market and then place his purchases back up for sale while the market is climbing. While this is the intent of the spot market to a degree, the lack of oversight makes it very easy to manipulate commodity spot prices and artificially drive up the price.

Futures trading can involve a slightly higher risk depending on the commodity, but the prices tend to rise gradually and are far less susceptible to sudden fluctuations. From an investors point of view the spot market is very volatile and as such can represent a very risky investment practice. Speculation can play a major role in the spot market as well since it can actually cause an artificial spike in prices when a particular commodity is taken off the market, this creates a shortage for a commodity that might ordinarily be plentiful and thus drives the price higher than it should be.

Until recently there has been little regulation of this market and it remains to be seen what the changes made with the Wall Street Reform Bill are going to have on this market, if any. Until changes are made these highly liquid investments can be both a boon and a disaster for your investment portfolio, if you have the time or an investment firm that monitors the markets on a minute by minute bases you can take advantage of any rapid rise in commodity spot prices before the fall, otherwise you may find that longer term investments make a better option.