Relationship between futures and spot markets in indian equity markets
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The term spot market is also referred to as cash market, depending on the context. A spot market represents a marketplace for the immediate settlement for the financial instruments that are transacted. The financial instruments can be commodities or any other securities for that matter. Based on above definition, a spot market is therefore referred to the over-the-counter markets in the context of currency trading, or it could also be the NYSE where stocks are traded and is referred to as the cash markets.
The cash markets or the spot markets, as the name suggests is a marketplace where trades are settled immediately. This means that the prices that you see in the spot markets are the current prices for the particular day/time and accurately reflects the buying or the selling prices of the assets that speculators are willing to transact.
A futures market is a market where market participants buy and sell contracts in financial instruments for delivery on a specified date in the future. The futures markets include various instruments such as commodities, stock indexes, and currencies and even select stocks. However, the pricing in the futures markets tracks the prices of the underlying asset in the cash or spot market.
For example, a euro fx futures contract pricing is based on the EURUSD spot forex price, or the price of the E-mini S&P500 futures contract tracks the price of the S&P500 index in the stock market.
The cash markets or the spot markets, as the name suggests is a marketplace where trades are settled immediately. This means that the prices that you see in the spot markets are the current prices for the particular day/time and accurately reflects the buying or the selling prices of the assets that speculators are willing to transact.
A futures market is a market where market participants buy and sell contracts in financial instruments for delivery on a specified date in the future. The futures markets include various instruments such as commodities, stock indexes, and currencies and even select stocks. However, the pricing in the futures markets tracks the prices of the underlying asset in the cash or spot market.
For example, a euro fx futures contract pricing is based on the EURUSD spot forex price, or the price of the E-mini S&P500 futures contract tracks the price of the S&P500 index in the stock market.
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