Category: 

What is a Cash Market?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The mongoose was introduced to Hawaii in order to kill rats, but mongooses hunt in the day, while rats are nocturnal.  more...

December 7 ,  1941 :  Japanese bombers attack Pearl Harbor.  more...

The cash market is a buying strategy in which the buyer makes an immediate payment that is equal to the current market price for commodities and other types of securities. Upon the receipt of the payment, the seller relinquishes all claims to the property and bestows ownership upon the buyer. In a sense, any type of retail transaction such as the purchase of groceries could be included in this definition, as the goods are received by the buyer upon rendering a cash payment for the products.

One of the characteristics that sets the cash market apart from a futures market is this immediate satisfaction and transfer of ownership. Futures markets involve a longer period for the transaction to be considered complete. With a cash market, the investor immediately assumes ownership and is free to do with the commodity or security as he or she wishes. While both approaches are capable of helping an investor realize a return on an investment, the cash approach may offer a level of speed and excitement that will attract investors who prefer to be constantly on the move with the investment portfolio.

Ad

This market is also called the spot market. Spot markets get their name from the fact that business deals are initiated and completed on the spot, rather than requiring an extended period of time to resolve. They tend to be somewhat fast paced, since the turnaround time on a transaction is so short. Many investors may purchase a commodity in the morning, see a rise in the value by this afternoon, and sell before closing and make a significant profit.

Many physical commodities, like metals, are bought and sold in this type of market. Grains, like corn or wheat, can be sold this way as well. Even meats, such as pork bellies, can be exchanged in this way. In addition, some securities as well as some underlying equities and bonds may also be sold in a cash market environment

Ad

You might also Like

Recommended

Discuss this Article

golf07
Post 8

I know that gold and silver are traded in a cash market, and wish I had taken advantage of this several years ago when the prices were much lower than where they are now. It is interesting to watch how different personalities are drawn to different kinds of investments.

I worked for several years in an investment department, and as a rule of thumb, most of the older investors were much more conservative than the younger ones.

There was one older gentleman I remember who enjoyed trading the cash market. He had done this for many years and was quite successful at it. Others I know have tried this type of investing and didn't feel comfortable with it at all.

Before investing in any kind of market, you have to know what your risk level is, and where you feel comfortable investing your hard earned dollars.

LisaLou
Post 7

I grew up surrounded by agriculture and remember my grandparents and parents closely listening to the prices of grain and hogs. The price of corn or soybeans was a normal part of their daily conversation.

As far as I know, none of them actively took part in trading the market. They did make their living on what the prices of these commodities were. They kept up with what the current prices were, and where they thought they might be in the future, but never actively traded them.

Because of my background, I have always been interested in stocks and commodities. I like the fast paced environment of the commodities market, and many times have thought about getting involved with buying and selling in a cash market.

bagley79
Post 6

I have been investing in the stock market for several years, but have never felt comfortable trading in a cash market. I am a very conservative investor and will buy a stock and intend to hold on to it for quite awhile.

I can understand how some people enjoy the ever changing prices of the cash market, but I don't think I would be able to sleep very well at night if I invested this way.

Buying and selling stocks has a fair amount of risk, but the cash market seems even more so. I would also think if you did this several times a day or week, the price of commissions you would pay on these transactions would add up quickly.

honeybees
Post 5

I traded commodities in a cash grain market for a short amount of time. I allowed myself a certain amount of money to try this, and needless to say, it didn't take me very long to lose my money.

I know a few successful commodities brokers who buy and sell in the cash market all the time, but I found this too volatile for me. I have also heard of people who were very successful at this for a period of time, and then ended up losing everything.

It was a good learning experience for me. I still like to listen to the prices of certain commodities, but when it comes to trading them, I leave that to someone else.

anon160654
Post 3

anon27262 -- i don't think so, how can you sell in the cash market what you don't actually own? you own the futures of the equity, not the actual equity. cash market = actuals.

anon31466
Post 2

What is the discounted price here?

anon27262
Post 1

HI,

can somebody buy the futures of a equity trading at a discount say 90 and sell the same in cash market which is trading at say 100, to make profit of that discounted price?

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email