Cash Market Vs Future Market

by Yuvi K - October 26, 2023

Cash Market Vs Future Market

The stock markets have two arms – the Cash Market and the Futures Market. While both are used for trading, there are differences between the two that buyers and sellers must be aware of. Let us take a look at each, so we can understand the Cash Market Vs Future Market better.

What is Cash Market?

The Cash Market (Also known as spot market, (लगातार बाजार)) is where stocks or commodities are traded for cash on the spot for delivery and/or settlement presently. Investment products such as stocks, bonds, foreign currency, gold, and derivatives, for instance, are bought and sold in the cash market. The cash market is the most liquid and lowest cost market for trading. A trade is usually completed instantly and there are no brokerage fees when trading in the cash market, (न केवल ब्रोकेज फीस को छोड़कर निवेश करने के लिए).

What is Future Market?

In the Futures Market (Also known as futures exchange, (भविष्य बाजार)), contracts are traded for buying or selling commodities or assets at an agreed-upon price in the future. It is a kind of contract in which a buyer and seller agree to buy and sell an asset for a future date at an agreed-upon price. The difference between the Cash Market and Futures Market is that in the Futures Market, trades are done for future delivery as opposed to immediate delivery.

Difference between Cash Market and Future Market

Advantages of Cash Market and Future Market

Cash Market Advantages

• No Waiting period as all trades are executed immediately.
• High liquidity and less risk involved due to immediate settlement.
• Ease of entering and exiting the market.
• No contract time-limits and expiry dates.

Future Market Advantages

• No need to proceed with physical delivery of asset, as the obligation of delivery is fulfilled by taking opposite position after contract expires.
• Provides the hedgers a good chance to hedge their risk.
• High leverage enables traders to have greater returns.
• No capital gain tax in Futures Market.
• Higher liquidity as compared to Cash Market.

Conclusion

The Cash Market and Futures Market have their own advantages and disadvantages. Before investing or trading any asset or securities, it is important to take into consideration the risks and rewards associated with each type of market.

The Cash Market is the highest liquidity market and provides quick entry and exit. On the other hand, the Futures Market is suitable for traders and those who are looking to win big in a short time. It is advised to understand both the markets and the associated risks before investing.