Cash Commodity

DEFINITION of 'Cash Commodity'

In futures trading, the cash commodity is delivered for payments. In certain contracts, a party is obligated to physically deliver the actual cash commodity, such as soybeans, oil, or treasury bills. Other contracts can be cash-settled, meaning that cash changes hand, rather than the physical commodity. In contrast to cash commodities, delivery on future contracts typically happens at a later date.

BREAKING DOWN 'Cash Commodity'

A simplified view is that the futures market is comprised of two groups: speculators and hedgers. Speculators are looking to make profits by betting on price changes and have no interest in taking possession of the underlying commodities. Hedgers are firms which either produce or require the underlying commodity. They are often interested in taking or making physical delivery of the underlying commodity, at a specified price. For example, an airline may hedge its operating costs by using a futures contract to lock in the price on future delivery of jet fuel.

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