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 –
- 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.
- 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.
- 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.
- 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.
- 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.