How Does the Lack of Physical Delivery Impact the Liquidity of Cash-Settled Futures?

The lack of physical delivery generally enhances the liquidity of cash-settled futures. By removing the logistical burden and costs associated with asset transfer, more market participants are willing to trade the contract purely for financial exposure, speculation, or hedging.

This broader participation leads to higher trading volumes and tighter bid-ask spreads, which are hallmarks of a highly liquid market.