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

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.

Why Is the Bid-Ask Spread on a Futures Contract Often Tighter than on the Spot Market?

How Does Cash Settlement Affect Market Liquidity Compared to Physical Settlement?

How Do the Delivery Mechanisms Differ between Physically Settled and Cash-Settled Futures Contracts?

Why Is the ‘Penny Pilot Program’ Significant for Options Bid-Ask Spreads?

Why Do Centralized Exchanges (CEX) Often Have Tighter Spreads for Altcoins than Decentralized Exchanges (DEX)?

How Does ‘In-the-Money’ (ITM) Options Liquidity Compare to OTM Options Liquidity?

Why Are Most Cryptocurrency Futures Cash-Settled?

What Is “Open Interest” and How Does It Differ from Trading Volume?

Glossar

Lack of Physical Delivery

Settlement ⎊ In the context of cryptocurrency derivatives, a lack of physical delivery means that contracts are settled financially based on a reference price index rather than requiring the exchange of the actual underlying asset.

Physical Delivery

Delivery ⎊ Physical Delivery in a derivative contract signifies the actual transfer of the underlying crypto asset from the seller to the buyer upon exercise or settlement, as opposed to a cash-settled exchange of net differences.