How Does Cash Settlement Differ from Physical Settlement in Futures Contracts?
Cash settlement means that upon expiration, the difference between the contract price and the final settlement price is paid in cash, usually fiat or cryptocurrency, without the exchange of the actual underlying asset. Physical settlement requires the seller to deliver the underlying asset to the buyer at the contract price.
Most crypto futures and all perpetual swaps are cash-settled, simplifying the process and avoiding the logistical complexity of asset transfer.
Glossar
Final Settlement Price
Valuation ⎊ The Final Settlement Price in cryptocurrency derivatives represents the agreed-upon value of the underlying asset at contract expiration, crucial for determining payouts in options and futures.
Cash Settlement
Settlement ⎊ Cash settlement, within cryptocurrency derivatives and options trading, represents the fulfillment of a contract obligation through a monetary exchange rather than physical delivery of the underlying asset.
Perpetual Swaps
Definition ⎊ Perpetual swaps are a type of derivative contract, highly popular in cryptocurrency markets, that allows traders to speculate on the future price of an asset without an expiration date.
Physical Settlement in Futures
Delivery ⎊ This settlement method mandates the actual transfer of the underlying digital asset from the seller to the buyer upon the futures contract's expiration or exercise.
Physical Settlement
Delivery ⎊ The concept of physical settlement, within the context of cryptocurrency derivatives and financial options, signifies the actual transfer of the underlying asset ⎊ be it cryptocurrency, tokens, or fiat currency ⎊ rather than a cash-based settlement.
Cryptocurrency Futures
Leverage ⎊ Cryptocurrency futures contracts represent agreements to buy or sell a specified quantity of a cryptocurrency at a predetermined price on a future date, functioning as a derivative instrument.