Cash Market

The “cash” market represents the specific, local marketplace in which suppliers sell and users buy a physical commodity based on negotiated terms including quality, quantity, delivery time, and location. The prices of cash commodity market transactions are typically quoted for either “spot” or “forward” contracts.

Spot Cash Contract

A spot cash contract involves a prompt or near term delivery of a commodity. The negotiated grade, quantity, and delivery, location are specified and price is set based off a relationship to the nearby futures contract, that is, the contract closest to expiration.

Forward Cash Contract

A forward cash contract calls for future delivery of a commodity. The negotiated grade, quantity, delivery location and time are specified and price is set based off a relationship to the appropriate deferred futures contract. This would represent the contract which would be the nearby month during the scheduled delivery period. In contrast to cash contracts, futures contracts are highly standardized with respect to quality, quantity, delivery time, and location. They are considered “benchmark” prices for the particular commodity because they represent the broad value at large, independent of local supply and demand factors.

Terminology

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