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Difference between Cash and the Derivative Market ?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 ROSHNI asked almost 3 years ago

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4 Answers
Data?1494421738 samkit kothari answered almost 3 years ago

> Difference between Cash and Derivatives Market Cash and derivatives markets are the terms which are used in the context of stock market; they both refer to trading of stocks. However they both are different, let’s look at some of the differences between cash and derivatives market – 1. In cash market, one can buy even one share of a company while in derivatives market minimum lots such as 20, 50 or 100 are fixed. 2. In Cash market people buy stocks for investment purpose only while in derivatives market people trade for hedging of their positions in cash market, arbitrage or for speculation. 3. While Buying securities in cash market involves paying all the money so for example if you want to buy 100 stock of Tata trading at Rs, 100 then you have to pay Rs. 10000 for purchasing 100 stock of tata while if one wants to trade in derivatives market than he or she can buy 100 stocks of Tata by paying 20 percent margin money upfront. 4. When one buys stock in cash market he or she becomes a part owner of the company and therefore he or she has all the rights such as right to vote or right for dividend, while in derivatives market one does not have any such rights. 5. In cash market one cannot buy or sell the index but only stocks of individual companies while under derivatives market one can buy and sell both index as well individual stocks of company.

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Data?1494421730 rohit awasthi answered almost 3 years ago

Hii Roshni > Difference between Cash and the Derivative Market Difference between Cash and the Derivative Market The basic differences between Cash and the Derivative market are as follows : (a) In cash market tangible assets are traded whereas in derivative markets contracts based on tangible or intangibles assets likes index or rates are traded. (b) In cash market, we can purchase even one share whereas in Futures and Options minimum lots are fixed. (c) Cash market is more risky than Futures and Options segment because in “Futures and Options” risk is often limited . (d) Cash assets may be meant for consumption or investment.Derivative contracts are for hedging, arbitrage or speculation. (e) The value of derivative contract is always based on and linked to the underlying security. Though this linkage may not be on point-to-point basis. (f) In the cash market, a customer must open securities trading account with a securities depository whereas to trade futures a customer must open a future trading account with a derivative broker. (g) Buying securities in cash market involves putting up all the money upfront whereas buying futures simply involves putting up the margin money. (h) With the purchase of shares of the company in cash market, the holder becomes part owner of the company. While in future it does not happen.

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Picsjoin 2017224123730582 Archana answered almost 3 years ago

Hie Roshni, **There are plenty of differences between the cash segment of the capital market and the futures segment. Here are few of the easy to understand differences :-** 1) In cash market, one can buy even one share of a company while in derivatives market minimum lots such as 20, 50 or 100 are fixed. 2)In Cash market people buy stocks for investment purpose only while in derivatives market people trade for hedging of their positions in cash market, arbitrage or for speculation. 3) While Buying securities in cash market involves paying all the money so for example if you want to buy 100 stock of Microsoft trading at $100 then you have to pay $10000 for purchasing 100 stock of Microsoft while if one wants to trade in derivatives market than he or she can buy 100 stocks of Microsoft by paying 20 percent margin money upfront. 4) When one buys stock in cash market he or she becomes a part owner of the company and therefore he or she has all the rights such as right to vote or right for dividend, while in derivatives market one does not have any such rights. 5) In cash market one cannot buy or sell the index but only stocks of individual companies while under derivatives market one can buy and sell both index as well individual stocks of company.

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Data?1494421636 Deep answered almost 3 years ago

There are so much difference between the cash market and derivative market segment: **1) Ownership :** When you buy shares in the cash market and take delivery, you are the owner of these shares or you are a shareholder, until you sell the shares. You can never be a shareholder when you trade in the derivatives segment of the capital market. **2) Holding period :** When you buy shares in the cash segment, you can hold the shares for life. This is not true in the case of the derivative market, where you have to settle the contract within three months at the very maximum. **3) Dividends :** When you buy shares in the cash segment, you normally take delivery and are a owner. Hence, you are entitled to dividends that companies pay. But when you buy any derivatives contract no dividend will be entitle on such stock. **4) Risk :** Both, cash and derivative markets pose risk, but the risk in the case of derivatives can be higher, because you have to settle the contract within a specified period and book losses. In the case of shares bought in the cash market, you can hold onto them for an indefinite period and can hence sell when prices are higher. **5) Lots vs shares:** In the derivatives segment you buy a lot, while in the cash segment you buy shares.

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