A Cash Market is a marketplace for the immediate settlement of transactions involving Commodities and Securities. In a cash market, the exchange of goods and money between the seller and the buyer takes place in the present, as opposed to the futures market where such an exchange takes place on a specified future date. This type of market is also known as the Spot Market, since transactions are settled on the spot.
The New York Stock Exchange (NYSE), using a real-world example, is a regulated cash market in the United States. The NASDAQ would also be considered a cash market.
An Index Futures Contract states that the holder agrees to purchase an index at a particular price on a specified date in the future. If on that future date the price of the index is higher than the agreed-upon price in the contract, the holder has made a profit, and the seller suffers a loss. If the opposite is true, the holder suffers a loss, and the seller makes a profit.
Agreements to buy or sell a standardized value of a Stock Index, on a future date at a specified price, such as trading New York Stock Exchange composite Index on the New York Futures Exchange (NYFE).
Advantages of Cash Indices
As an Investment instrument it combines features of securities trading based on Stock Indices with the features of commodity futures trading.
It allows investors to speculate on the entire stockmarket’s performance, short sell an index with a Futures contract, or to hedge a long position against a decline in value.