How Does Cash Settlement Enable Higher Leverage Compared to Physical Settlement?

Cash settlement makes the financial exchange straightforward, requiring only the transfer of profit or loss in cash, not the entire notional value of the asset. This reduces the counterparty and operational risk for the exchange, making it safer to offer higher leverage.

Physical delivery requires robust logistics and risk management for the actual asset transfer, which is complex and limits the practical leverage that can be safely offered on the full asset value. Cash settlement is purely a financial transaction.