Cash (Spot) contracts

sunandaC

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Any purchase of a commodity for cash is known as a cash contract or spot contract. Purchase by credit, under which the payment is made after a certain number of days in future also come under cash (spot) contract.
Cash contract can be based on a fixed or negotiated price, a price index or the price fixed by an exchange based on demand and supply for the commodity.

A typical characteristic of commodity cash (spot) contracts is that most of them are settled by cash with out actual delivery of the commodity, but a handful of them end up as physical delivery contracts.

The prices in the spot market are also used to decide the prices of the derivatives markets.
 
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