How Does Physical Settlement Impact the Liquidity of a Futures Market? ⎊ Path

How Does Physical Settlement Impact the Liquidity of a Futures Market?

Physical settlement can sometimes reduce the liquidity of a futures contract, particularly as it approaches expiration. Traders who do not want to deal with delivery tend to close out their positions before the delivery period begins, which concentrates trading volume into the front-month contract and reduces volume in the expiring contract.

This is less pronounced in highly liquid financial futures markets.

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Glossar

Physical Settlement Impact

Delivery ⎊ This refers to the actual exchange of the underlying cryptocurrency for cash or the settlement asset upon the option's expiration or exercise, as opposed to a cash-only settlement.