Cash Contract

DEFINITION of 'Cash Contract'

A financial arrangement that requires delivery of a particular amount of a specified commodity on a predetermined date. A cash contract is closely related to but should not be confused with a futures contract, in which positions are usually settled in cash. Futures traders are often hedging or speculating to manage risk or turn a profit, and are not interested in physically owning the commodities.

BREAKING DOWN 'Cash Contract'

There are other important differences between cash contracts and futures contracts. A cash contract creates a direct obligation between the buyer and the seller, whereas a futures contract obliges each party to an exchange's clearinghouse. Also, a cash contract can be drawn up for any amount that a buyer and seller can agree on, whereas a futures contract must be written for a predetermined, standardized quantity allowed by the exchange.

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