What is Difference between Cash Market vs Future Market

Cash Market

Future Market

Nature of Transaction

This market is all about the here and now. When a transaction is initiated, it is concluded almost immediately, meaning that buyers get their assets and sellers receive their payments without delay.

This market is more about planning and anticipation. Instead of an immediate transaction, participants enter into an agreement. They decide on a set transaction, but it will only occur at an agreed-upon date.

Settlement

Everything happens in real-time. Once there's an agreement on the price between a buyer and seller, the deal is settled, and assets are transferred.

There's an element of patience required. Even after the deal's terms are set, the actual transaction – where assets and money are exchanged – will only occur on a designated future date.

Purpose

This is the go-to place for immediacy. If you want an asset right now and are ready to pay for it, this is where you head. It meets the urgent requirements of both buyers and sellers.

Its utility is multi-faceted. Some participants use it as a protective shield against potential price shifts, while others see it as a platform to make profit predictions about future prices.

Risk

Speed is the essence here, and since everything happens so quickly, there's limited scope for unforeseen disruptions. This often means reduced risk.

Given the nature of future predictions, there's always a cloud of uncertainty. Prices could swing in any direction, introducing a higher risk quotient.

Standardisation

There's a bit of variety here. The assets one encounters might vary – in grade, size, or other features.

Standardisation is a hallmark. Every contract conforms to specific guidelines, ensuring there's no ambiguity.

Trading Volume

Its primary purpose is to cater to the immediate needs of the buyer and the seller, which often translates to fewer transactions and a lower trading volume.

The allure of speculating on future price movements draws in a lot of participants. This often results in a buzz of activity and higher trading volumes.

Regulation

The exchange where the trading occurs typically oversees activities, ensuring all transactions are above board.

With stakes being higher and the nature of contracts being complex, a slew of regulatory bodies keep a watchful eye, ensuring strict standards are met.

Margin Requirement

It's a straightforward contract. If you're buying, you pay the full amount upfront.

Thanks to the concept of margin, traders don't need to put down the full value of a contract. Instead, they can initiate trades by depositing only a portion, thereby managing larger positions with a smaller capital outlay.