How Does Physical versus Cash Settlement Relate to Standardization?
Standardization dictates the settlement method. Cash settlement means the difference between the contract price and the spot price is exchanged in cash, which is highly standardized.
Physical settlement requires the actual delivery of the underlying asset, which introduces logistical complexities that must also be standardized by the exchange rules.
Glossar
Physical versus Cash Settlement
Mechanism ⎊ Physical versus cash settlement defines how a derivative contract is fulfilled, impacting risk exposure and capital efficiency.
Physical Settlement
Delivery ⎊ The concept of physical settlement, particularly within cryptocurrency derivatives and options, signifies the actual transfer of the underlying asset ⎊ be it a digital token or a commodity ⎊ rather than a cash-based offset.
Cash Settlement
Resolution ⎊ The core of a cash settlement, particularly within cryptocurrency derivatives and options trading, involves the final exchange of funds rather than the physical delivery of the underlying asset.
Crypto Futures Contracts
Leverage ⎊ Crypto futures contracts represent agreements to buy or sell an underlying cryptocurrency asset at a predetermined price on a specified future date, facilitating exposure without immediate asset ownership.