A cash contract definition refers to an agreement between two parties to buy or sell a specified asset at a predetermined price on a future date. The asset can be anything from gold and silver to corn and wheat. The price is set at the time of the contract and is usually based on the spot price of the asset at that time. What are commodities? A commodity is a physical good that is interchangeable with other goods of the same type. Commodities are basic resources that are used to produce other goods and services. They are natural resources like oil, gas, and minerals, agricultural products like wheat and corn, and metals like gold and copper.
Most commodities are traded on futures exchanges, which are markets where contracts are traded for future delivery of a commodity. These contracts set the price of the commodity for a future date, and traders use them to speculate on the price movements of the commodity.
When you buy a commodity, you are buying a physical good that you can take possession of, like a barrel of oil or a bushel of wheat. When you trade a commodity future, you are trading a contract that gives you the right to buy or sell the commodity at a set price on a future date.
Which is better spot or futures? The answer to this question depends on a number of factors, including the trader's goals, risk tolerance, and investment horizon.
For example, if a trader is looking to take advantage of a short-term price movement, then futures may be a better choice. This is because futures contracts are typically geared towards longer-term trading, and therefore may not be as sensitive to short-term price movements.
On the other hand, if a trader is looking to take advantage of a longer-term price trend, then spot contracts may be a better choice. This is because spot contracts are typically more flexible, and can be held for shorter or longer periods of time, depending on the trader's goals.
Ultimately, it is up to the individual trader to decide which type of contract is best for their needs. What's the difference between the cash and futures price of a commodity? The cash price of a commodity is the price at which the commodity can be bought or sold for immediate delivery. The futures price of a commodity is the price at which the commodity can be bought or sold for delivery at a later date. The difference between the cash price and the futures price is known as the basis.
What are the types of futures?
The most common types of futures are commodities futures, financial futures, and stock index futures.
Commodities futures are agreements to buy or sell a physical commodity at a future date. The underlying commodities can include agricultural products, metals, and energy products.
Financial futures are agreements to buy or sell a financial instrument at a future date. The underlying instruments can include interest rates, foreign currencies, and stock indexes.
Stock index futures are agreements to buy or sell a basket of stocks at a future date. The underlying stock indexes can include major stock market indexes like the S&P 500 or the Dow Jones Industrial Average.
What is the difference between physical and cash settlement?
In a physical settlement, the underlying asset is delivered to the counterparties on the settlement date. In contrast, in a cash settlement, the counterparties simply exchange the cash difference between the settlement price and the contract price.
There are several key differences between physical and cash settlement:
- With physical settlement, the buyer of the contract is guaranteed to receive the underlying asset, while with cash settlement the buyer only receives the cash difference.
- Physical settlement is often used for commodities, while cash settlement is more common for financial instruments.
- Physical settlement usually requires storage and handling of the underlying asset, while cash settlement does not.
- With physical settlement, the price of the underlying asset on the settlement date can affect the settlement price, while with cash settlement the settlement price is only affected by the contract price.