The cash market, also known as the spot market, is where financial instruments are traded for immediate delivery and settlement. In cash markets, transactions are completed “on the spot” with payment and delivery occurring within a few business days. This contrasts with futures or forward markets where delivery occurs at a predetermined future date.

Cash markets provide the underlying price discovery mechanism for most financial instruments, including stocks, bonds, currencies, and commodities. Prices in cash markets serve as benchmarks for derivative instruments and reflect current supply and demand conditions. Cash market trading typically involves lower leverage and immediate ownership transfer, making it suitable for investors seeking direct exposure to assets.

Real-world example: An investor purchases 100 shares of Microsoft stock in the cash market at $350 per share, taking immediate ownership with settlement occurring within two business days.