Transactions on the commodity exchanges fall into two broad categories: cash contracts and futures contracts. Accordingly, the commodity exchange may be a cash market or a futures market or may combine both. The cash contracts for the purchase of sale of commodities are those which call for payment of the full contract price in cash on delivery. Such contracts are made in the cash or physical market. In fact, they are also referred to as physical contracts in the sense that they deal in actual or physical products. The cash or physical contracts may be sub-divided into two sub-classes: spot contracts and forward contracts.

Spot transactions are those cash contracts which involve the payment for the price by buyer and the delivery of the specified grade of goods by seller immediately or within a short time. These contracts relate to the purchase or sale of commodities on spot. The essence of such contracts is the ready delivery and acceptance of the delivery of the goods sold. Forward dealings are those cash contracts made in the cash or physical market, which call for the delivery of goods and payment of the price after a specified period on a fixed date.

As against cash contracts, which require the payment or cash against physical delivery of goods immediately on spot or after a specified period, a futures contract is a special type of agreement made strictly under the rules of a commodity exchange which may or may not call for the actual delivery of goods and payment of price in cash on a future trade.

Future contract can be defined as a contract for the future delivery of some commodity without reference to specific lots, made under the rules of some commercial body, in a set form, by which the conditions as to unit of amount, the quality and time of delivery are stereotyped and only the determination of the total amounts and the price is left open to the contracting parties.