What is 'Cash Price'

The cash price is the actual amount of money that is exchanged when commodities are physically bought and sold on the spot market. The cash price will usually include all transaction, carry and transportation costs. Investors looking to benefit from changes in commodity prices can invest in commodity futures, which are anticipated cash prices. Changes in futures trading volume affect the volatility of cash prices, but commodity cash prices are actually separate from futures prices.

BREAKING DOWN 'Cash Price'

The cash price is not the same as the futures price. Cash prices are published by a number of different financial information service providers. These prices reflect buying and selling of a variety of actual or "physical" commodities in the marketplace-separate from the futures price on an exchange, which reflects what the commodity might be worth in future months.

The cash price is the amount paid for commodities on the spot market, where large manufacturers commonly purchase the commodities they need for production in their factories. These manufactures are not speculating on the price of the commodities they need, which can be done in the futures market. Instead, they are physically purchasing the raw materials they need for their manufacturing process. Commodities are physical products that are generally indistinguishable no matter which company brings them to the marketplace. Examples include corn, crude oil, gasoline, gold, cotton, beef and sugar.

The price of a commodity with a futures contract can be very different from the cash price of the same commodity on any given day. For example, the one-month futures contract for oil, which will expire next month, could have a very different price than the cash price for oil (which is what oil costs to purchase today). One interesting feature of the cash price is that it is the price at which every futures contract expires. In other words, when a futures contract expires, in our example in one month, the price of the futures contract at expiry is the same as the cash spot price. If this was not the case, there would be an arbitrage opportunity between the futures price and the cash price.

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