The term “cash segment” is commonly used in financial markets, especially in stock exchanges, to refer to transactions where securities are bought and sold for immediate delivery and payment. Unlike derivatives or futures markets, the cash segment involves direct trading of shares, bonds, or other financial instruments, with settlement typically occurring within a short period, such as T+1 or T+2 days (where T is the transaction date).
## What is the Cash Segment?
In the cash segment, investors trade actual securities rather than contracts or agreements based on underlying assets. When you buy shares in the cash segment, you become the owner of those shares once the transaction is settled. This is different from trading in the derivatives segment, where you are dealing with contracts whose value is derived from an underlying asset, but you do not own the asset itself.
## Key Features of the Cash Segment
– **Immediate Ownership:** Shares or securities purchased in the cash segment are transferred to the buyer’s account after settlement, providing direct ownership.
– **Settlement Cycle:** The settlement cycle is usually short (T+1 or T+2), meaning the transfer of securities and payment takes place within one or two days after the trade.
– **No Leverage:** Trades in the cash segment are typically done without leverage. Investors must pay the full value of the securities.
– **Transparency:** Prices in the cash segment are determined by actual market demand and supply, offering transparency to investors.
## Advantages of Trading in the Cash Segment
1. **Lower Risk:** Since you own the securities outright, there is less risk compared to leveraged or derivative trading.
2. **Long-term Investment:** The cash segment is suitable for long-term investors who want to build a portfolio and benefit from capital appreciation and dividends.
3. **Simplicity:** The process is straightforward—buy, hold, and sell shares as desired.
## How to Trade in the Cash Segment
To trade in the cash segment, you need to have a trading and demat account with a registered broker. Once your account is set up, you can place buy or sell orders for shares listed on the exchange. After the transaction, the shares are credited to your demat account, and payment is debited from your bank account.
## Cash Segment vs. Derivatives Segment
| Feature | Cash Segment | Derivatives Segment |
|———————|———————–|———————–|
| Asset Ownership | Direct | Indirect (via contract)|
| Settlement | T+1/T+2 | Expiry date |
| Leverage | None | High |
| Risk | Lower | Higher |
| Suitable for | Long-term investment | Speculation/hedging |
## Conclusion
The cash segment is ideal for investors looking for direct ownership of securities and lower risk. It is best suited for those who prefer simplicity and transparency in their investment approach. Understanding the differences between the cash segment and other market segments can help you make informed investment decisions and build a solid financial portfolio.
