How Are Cryptocurrency Futures Contracts Typically Settled?
Cryptocurrency futures contracts can be settled in two main ways: physically or cash-settled. Physically settled futures require the delivery of the actual underlying cryptocurrency upon expiration.
Cash-settled futures, which are more common, are settled by paying the difference between the contract price and the spot price in fiat currency or a stablecoin, without the physical exchange of the underlying crypto asset.
Glossar
Cryptocurrency Futures Contracts
Leverage ⎊ Cryptocurrency futures contracts represent agreements to buy or sell a specified quantity of a cryptocurrency at a predetermined price on a future date, facilitating exposure without immediate asset ownership.
Contract Price
Definition ⎊ Contract price refers to the agreed-upon price at which a derivative contract, such as an option or future, is bought or sold.
Fiat Currency
Foundation ⎊ Fiat currency, within the context of cryptocurrency and derivatives, represents a governmental legal tender not backed by a physical commodity; its value is declared and maintained by the issuing nation’s regulatory framework, influencing the pricing and settlement of crypto-based financial instruments.
Price Index
Valuation ⎊ A price index within cryptocurrency, options, and derivatives functions as a standardized measure of price movements across a basket of underlying assets, facilitating comparative analysis and risk management.
Cryptocurrency
Asset ⎊ Cryptocurrency, within the context of options trading and financial derivatives, represents a digitally native asset class exhibiting characteristics of both fiat currency and commodities, yet fundamentally distinct due to its cryptographic security and decentralized nature.
Futures Contracts
Mechanism ⎊ Futures contracts, within cryptocurrency and broader financial derivatives, represent standardized agreements obligating parties to transact an asset at a predetermined price on a specified future date; these instruments facilitate price discovery and risk transfer, extending beyond traditional commodities to encompass digital assets and complex financial indices.