How Does a Clearing House Handle Settlement for Physically-Delivered Vs. Cash-Settled Futures?
For physically-delivered futures, the clearing house oversees the actual transfer of the underlying asset from the seller to the buyer on the expiration date. For cash-settled futures, no physical asset changes hands.
Instead, the clearing house calculates the difference between the contract price and the final settlement price. It then facilitates the transfer of the cash difference between the buyer and seller.
Most crypto futures are cash-settled.
Glossar
Final Settlement
Resolution ⎊ Final Settlement, within cryptocurrency derivatives and financial markets, signifies the conclusive determination of obligations arising from a contract, typically involving a cash or asset transfer to extinguish all outstanding commitments.
Clearing House
Settlement ⎊ A clearing house, within cryptocurrency and derivatives markets, functions as an intermediary between buyers and sellers, mitigating counterparty risk through a process of novation ⎊ replacing original trade agreements with new ones directly with the clearing house.
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.