How Do the Settlement Procedures of Futures Contracts Affect Basis Trading Strategies?

Settlement procedures determine how the contract is closed upon expiration. Cash settlement (common in crypto) means the difference between the futures price and the spot price is exchanged in cash, requiring no physical delivery.

This simplifies basis trading, as the convergence is guaranteed at the final settlement price. Physical settlement requires the delivery of the underlying asset, adding logistical complexity and cost, which must be factored into the basis calculation.