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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  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>

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