A financial market is a platform where financial instruments are created and traded between investors. Some of the financial instruments are securities, currencies, and commodities.
The financial market creates a channel for the allocation of savings and investments. These areas play a crucial role in the growth of the economy.
Cash and future markets are two main classifications of the financial market based on the time of delivery. Keep in mind that there are other ways of classifying the financial market.
So, what is the difference between cash and future market? The cash market is where financial instrument dealings are done and delivered immediately. The futures market is where only futures contracts are bought and sold at the agreed date.
This article provides the difference between cash market and future market in a tabular form for better understanding. You’ll also get to know different types of cash markets.
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Comparison Table (Cash Market Vs Future Market)
|Basic Terms||Cash Market||Future Market|
|Description||It is a marketplace where financial instruments are bought and immediately delivered.||It is a commerce place where only future contracts are bought and sold at the agreed period and price.|
|Significance||Ideal for buying commodities and shares in the market.||Entails speculations and hedge prices.|
|Ownership of Shares||There is an option to become a shareholder.||No option of becoming shareholders.|
|Delivery Time||Instant or 2-3 days period.||At a specific future date|
|Regulation||Exchange over the counter.||Exchange.|
|Payment||The full amount needs to be paid before buying shares.||Margin amount for initiating the future contract.|
|Lot Requirement||Freedom to buy even a single share of the company||There is a minimum lot requirement.|
|Holding Period||For life||End of the contract|
|Dividends||Shareholders are entitled to dividends.||Nobody is entitled to dividends.|
|Objective||Allow people to buy shares for investment purposes.||Allow people to trade for arbitrage, hedging, and speculation purpose.|
What Is Cash Market?
A cash market is a marketplace where commodities or securities are bought and received immediately at the point of sale. It is also known as a spot market since the exchange is done on the spot.
Keep in mind that the cash market is different from the money market. The commerce platform allows the investors to take possession of the commodities or securities at the point of sale.
An example of a cash market is the stock exchange since shares are exchanged for cash at the point of sale. But money market involves trading in cash equivalents to settle short-term debts.
What Is Future Market?
A future market is a trading platform where people trade in future and option contracts. These obligations allow investors to trade in commodities, securities, and currencies at the agreed date and price.
Future markets have a set of rules, regulations, and standards. The intention is to hedge a risk due to uncertainties associated with future prices or speculation purposes.
Keep in mind that the price of commodities, securities, and currencies is uncertain in the future. The investor has to enter into a futures contract to buy products at a future price and date.
Main Difference between Cash Market and Future Market
- The cash market is where financial instruments are traded and delivered at the point of sale. The future market is where only future contracts are bought and sold at a future price and date.
- The cash market is for buying trades and shares in the market. The future market is for speculations and hedging risks.
- The cash market gives ownership of shares to the shareholder. The future market does not give investors ownership of shares.
- Cash market regulator is OTC whereas those of future markets are exchanges.
- Cash market shareholders are entitled to dividends. Investors in the future markets are not entitled to dividends.
Similarities between Cash Market and Future Market
- Both belong to the financial market
- Both are common platforms for government, companies, and the general public.
- Both have regulatory bodies.
The cash market and future market are financial exchange markets. They play a crucial role in trading financial instruments like securities and currencies.
The main difference between the cash market and futures market is based on ownership and time taken to deliver the commodity.
The cash market allows the investor to become a shareholder after purchasing the shares at the point of sale. The future market does not allow the investor to become a shareholder.
Shareholders in the cash market do enjoy dividends. But investors in the future market do not enjoy dividends even after making the full payment.
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