Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Cash Market

What it is:

Also called the spot market or the physical market, a cash market is a market for securities or commodities in which the goods are sold for cash and for immediate delivery. In some cases, "immediate" means one month or less. Foreign exchange markets are some of the largest cash markets.
 

How it works (Example):

Cash markets differ from futures markets in that delivery takes place immediately. So, if you wish to purchase Company XYZ shares and own them immediately, you would go to the cash market on which the shares are traded (the New York Stock Exchange, for example). If, however, you wanted to purchase a contract that entailed taking possession of Company XYZ shares, you would seek out the futures exchange on which Company XYZ shares trade.

Why it Matters:

It is important to know the difference between cash markets and futures markets, as well as the difference between spot prices and futures prices. This difference -- the time spread -- can be an economically important variable because it indicates the market's expectations about futures prices. Cash markets are influenced, for the most part, solely by supply and demand, whereas futures markets are also influenced by expectations about prices later, storage costs, weather predictions (for perishable commodities in particular), and other factors.
 

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