How Does a Futures Contract's Settlement Mechanism (Cash Vs. Physical) Affect Risk? ▴ Learn

How Does a Futures Contract’s Settlement Mechanism (Cash Vs. Physical) Affect Risk?

Physical settlement requires the actual delivery of the underlying asset (e.g. Bitcoin) upon expiration, introducing logistical and custody risks.

Cash settlement, common in crypto futures, only requires the payment of the profit or loss in cash (or stablecoin), eliminating the need for physical delivery. Cash settlement simplifies the process and reduces the risk associated with handling the underlying asset.

How Does Physical Settlement Affect the Supply and Demand Dynamics of the Underlying Cryptocurrency?

What Is the Process of Physical Settlement versus Cash Settlement in Crypto Derivatives?

Does Physical Settlement Expose Traders to Greater Custody Risks?

How Does the Lack of Physical Delivery Affect a Trader’s Tax Obligations?