Question

- What is the difference between a spot market and a futures market?

- What is the difference between a pure risk and a speculative risk?  

Answer 1

ANSWER 1 :-

Spot Market Vs Furture markets.

Spot market - A spot market or cash market is where the exchange of financial instruments settle immediately. Stocks and currencies are the most well known spot market instruments.

Future market - A futures market is where participants buy and sell contracts for delivery on a specified date in the future. The futures markets include various instruments like commodities, stock indexes, currencies and select stocks.

Some important DIfferences :-

Context	Future Market	Spot Market
Counterparty Risk	Since futures trades settle in the future, there is a chance that there is no one other side of the trade.	Margin in the spot market is an upfront fee with the broker and is not related to counterparty risk.
Trade Settlement Period	In the futures markets, the underlying asset has a specific settlement date in the future.	For some spot markets, the allowable settlement time period is two working days.
Ability to Leverage	In futures, every contract controls a specified amount of units of the underlying commodity or asset.	You can leverage some spot markets such as the Forex OTC
Price	Futures prices are different because of carrying costs and carrying return	The spot price is usually below the futures price.

Note - Traders use the futures market as a hedge against spot markets.

ANSWER 2

Pure risk v/s Speculative risk

1) Pure risks involve the possibility of Loss only.

2) Speculative risks involve the possibility of both loss and gain

Only pure risks are insurable because they involve only chance of loss but speculative risks are not insurable,

Example - Investing in stock market is a type of speculative risk because the outcome here can be either profit or loss,
But insuring your automobile is a pure risk since if there is a involvement of accident or problems in automobile it is going to be for sure a loss and there is no chance of gain in this scenario.