Financial Market implies a market wherein financial instruments like securities, currencies, commodities, etc. are created and exchanged between investors. It plays a crucial role in an economy, as it provides a medium for allocation of savings to investment. There are different ways of classifying financial market and so, based on the time of delivery, the financial market is classified as cash market and future market. Cash market, or otherwise known as spot market is one where the delivery of the underlying asset takes place immediately.
On the other hand, future market is the market, wherein the delivery and payment of the financial assets such as shares, debentures, etc. occurs at a future specified date. This article excerpt sheds light on the difference between cash market and future market.
Content: Cash Market Vs Future Market
Comparison Chart
| Basis for Comparison | Cash Market | Future Market |
|---|---|---|
| Meaning | A place where dealing of financial instruments is done for immediate delivery. | A place where future contracts are dealt by people and entities. |
| Time Horizon | Normally, trade date + 2 or 3 days (as the case may be). | At a specific future date. |
| Regulation | Exchanges and Over The Counter (OTC). | Exchanges. |
Definition of Cash Market
A cash market is a place where financial instruments like securities and commodities, i.e. precious metals or agricultural produce are bought and sold for immediate delivery (on a spot date). It is also referred as a spot market. In the cash market, there are two sections, equities – where equities like shares are traded and debts – where debts like government bonds and mortgage bonds are traded.
The cash market may be an exchange or an OTC – Over The Counter. The exchange is a place where the general public, government, firms, etc. can mutually by and sell their securities and other financial instruments. It can be a Stock Exchange like BSE (Bombay Stock Exchange) or NSE (National Stock Exchange) or a Commodity Exchange or a Foreign Exchange Market. Over The Counter is a trading made between two parties without the help of exchange.
Definition of Future Market
Future Market is an exchange market where future contracts are bought and sold. The term futures contract refers to a contract which is executed in the future. It is a contract between two parties in which one party agrees to buy a certain quantity of a commodity or financial instrument at an agreed price, and delivery of the stuff is done at a later date (pre-specified) in future.
The regulators of future market in India are SEBI (Securities Exchange Board of India) and FMC (Forward Markets Commission)
In India, the famous future exchange market is Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Bharat Diamond Bourse (BDB), Indian Energy Exchange (IEX).
Key Differences Between Cash Market and Future Market
The points given below discuss the difference between cash market and future market:
- The financial market where securities and commodities are merchandised for prompt delivery is Cash Market. The exchange market where future contracts are merchandised is Future Market.
- In the cash market, the deal between the parties is settled within trade date + 2 or 3 days. In the future market, the deal is settled on a future specified date.
- The regulators of a cash market are exchange or OTC whereas the regulation of the future market is made only by an exchange.
Conclusion
Cash Market and Future Market both are the financial exchange market where government, the general public, and companies get a common platform for trading in financial instruments. The two terms are similar in some respect, but differences between them still exist.
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