The cash market and future market are two very common types of financial markets. Financial markets help businesses and other organizations in shaping the economy by providing the means of saving investments made.
In business, many people use the terms cash market and future market interchangeably. However, there is an obvious difference between them. This blog will help you to understand the complete difference between the cash market and the future market, with some of the additional concepts. This article has the following main concepts.
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Definition Of Cash Market
A cash market generally refers to a marketplace where financial tools like securities and commodities are purchased and sold in exchange for money(cash) on a spot date. Therefore, the cash market is also known as the spot market because the transactions get resolved on the spot. The two sections of the cash market are debts(where government bonds and mortgage bonds are included) and equities(where shares are traded).
Definition Of Future Market
On the other hand, a future market takes place where only future contracts are bought and sold at a decided date and at a predefined price in the future. Here the term future contract implies the argument which is going to be executed in the future. It is a contract between two parties in which one party gives consent to buy a particular amount of commodity or financial tool at an agreed cost price and delivery of material is done at a pre-defined date in the future.
Cash Market Vs Future Market(Comparison Table)
| Basis For Difference | Cash Market | Future Market |
| Definition | It refers to a marketplace where agreement or dealing of financial tools is done in exchange for cash. | A place where future contracts are delivered and dealt with between two parties |
| Objective | Buying trades and shares in the market | For speculations and fence market |
| Time Horizon | Generally, trade date + 2 days | At a particular date in the future |
| Regulation | Exchanges and OTC(Over The Counter) | Exchanges |
| Dividend | No, entitle of dividend | If you have any shares, you can receive a dividend |
Key Differences Between Cash Market And Future Market
Some of the differences between cash and future market are as follows.
- A cash market generally refers to a marketplace where financial tools like securities and commodities are purchased and sold in exchange for money(cash) on a spot date. On the other hand, a future market takes place where only future contracts are bought and sold at a decided date and at a predefined price in the future.
- In the cash market, the time duration between two parties is generally TD(trade date) + 2 or 3 days. On the other hand, in the future, the deal is always settled at a future-defined date.
- Exchanges and OTC(Over The Counter) are the regulators of the cash market while the regulation of the future market is assembled only by the exchange.
Conclusion
So, with the above discussions, we can simply say that both the cash market and future market are the parts of the financial exchange market where govt, the companies, and the public get an ordinary platform for trading in financial tools. Exchanges and OTC(Over The Counter) are the regulators of the cash market while the regulation of the future market is assembled only by the exchange.
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