Difference Between Cash Market and Future Market
Izhar Ahmad25 Oct, 2023
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Cash Market and Future Market: Financial markets are platforms where financial instruments such as securities, currencies, and commodities are generated and exchanged between buyers and sellers. These markets come in various types based on their characteristics, including nature, claim, time, and structure. Time-wise, they can be categorized into Cash Market and Future Market. In a Cash Market, transactions involve immediate payment and real-time ownership transfer to the buyer. In contrast, Future Markets facilitate ownership transfer on a predetermined future date, with payment made on the current day.
Cash Market and Future Market Meaning
A cash market is a marketplace where commodities and securities are bought and exchanged for immediate cash. It is often referred to as a spot market because transactions are settled instantly. These transactions can occur within regulated environments like stock exchanges or through unregulated over-the-counter trades.
On the other hand, a futures market is a trading platform where agreements for future transactions are bought and sold. A futures contract signifies an arrangement to be fulfilled at a later date. It involves two parties, where one agrees to buy a specific quantity of a commodity or financial instrument at an agreed-upon price. The delivery of the goods or assets takes place on a specified future date.
Difference Between Cash Market and Future Market
The table provided below summarizes the key distinctions between Cash Market and Future Market:
| Aspect | Cash Market | Future Market |
| Meaning | Immediate purchase, sale, and delivery of financial commodities. | Purchase and sale of financial commodities with delivery set for a future date. |
| Alternate Name | Also known as Spot Markets. | Referred to as Forward Markets. |
| Examples | Includes Stock Exchanges and Over-the-counter transactions. | Includes The New York Mercantile Exchange and The Chicago Board of Trade. |
| Time Horizon | Typically, delivery occurs within 2 or 3 days after the trade. | Delivery takes place on a specified future date. |
| Purposes | Used for buying and selling shares and other financial commodities. | Primarily employed for hedging risk and price discovery. |
| Payment | The full transaction amount is paid at the time of the trade. | Only margin money is required to initiate the transaction. |
| Holding Period | Financial commodities can be held indefinitely. | Contracts must be settled on or before the expiration period. |
| Lot Size | Allows the purchase of even a single share. | Shares must be bought according to the minimum lot size defined. |
| Dividends | Entitles the buyer to receive dividends when shares are purchased in the Cash Market. | Future contract buyers do not receive any dividends. |
Cash Market and Future Market FAQs
What is an example of a future market?
Why trade futures instead of cash?
Can I buy in cash and sell in futures?
Is futures trading more risky?
What is the riskiest type of trading?
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