CASH MARKETS

Cash markets have various names and these include spot market or the physical market, a cash market is a trading process where commodities or securities are sold for cash for the purpose of wanting that product immediately (up to one month) delivery hence the name cash market. Some of the largest cash markets are foreign exchange products which is commonly known as FX.

Cash markets mustn’t be confused with futures markets as they have different functions for investors or traders. The main difference as we have explained is that in cash markets delivery occurs immediately. If you wanted purchase stocks for example and own them immediately you would trade in the cash market where stocks are traded i.e. The London Stock Exchange for example. Whereas you would trade a futures market if you wanted to own the contract for possession in the future hence the name futures markets.

It’s important for Investors and traders to understand the differences between cash markets and futures because they both serve a different role. Because futures can be traded as contracts for the future a spread between futures products can exist. A spread in futures can be very important in trading because economically speaking it indicates the market’s expectations about futures prices. Cash markets on the other hand are generally more influenced by supply and demand because the need for them is immediate, unlike futures which can be affected by speculation (traders making profit on price rather than an interest in the product). Futures markets are also sensitive to factors such as storage costs, weather, production costs, interest rates etc.…because delivery takes place at a later date and these factors can influence price at a later date in the future.