# What Is the Difference between Cash-Settled and Physically-Settled Futures? ▴ Learn

**Published:** 2025-11-22
**Categories:** Learn

---

## What Is the Difference between Cash-Settled and Physically-Settled Futures?

Cash-settled futures do not involve the physical delivery of the underlying asset; instead, the difference between the contract price and the settlement price is paid in cash. Physically-settled futures require the buyer to take delivery of the underlying asset and the seller to deliver it upon contract expiry.

Crypto futures are predominantly cash-settled.

Explain the Difference between Physically-Settled and Cash-Settled Futures Contracts

What Is the Main Difference between a ‘Cash-Settled’ and ‘Physical-Settled’ Option?

What Is the Primary Difference between Cash-Settled and Physically-Settled Crypto Futures?

What Is the Key Difference between Cash-Settled and Physically-Settled Futures Contracts?

## Discover More

- 
### [How Does the Settlement Process Differ between Cash-Settled and Physically-Settled Futures?](https://crypto.greeks.live/learn/how-does-the-settlement-process-differ-between-cash-settled-and-physically-settled-futures/)
![This striking composition features metallic, angled structures, possibly representing leveraged instruments or hardware wallets, contrasted against a smooth, opaque cyan sphere symbolizing an underlying asset or stablecoin reference rate. The juxtaposition evokes the complexity of structuring non-linear payoff matrices typical in exotic options trading like digital spreads. The layered metal elements suggest capital stacking or multi-signature cold storage protocols awaiting execution, perhaps an implicit limit order book depth in a decentralized exchange RFQ system. Key concepts include basis risk differentials, volatility surface mapping, and the precise demarcation of embedded options within structured finance vehicles, emphasizing collateral management efficiency across fragmented liquidity pools in DeFi primitives.](https://crypto.greeks.live/wp-content/uploads/2025/10/Abstract-Representation-of-Multi-Asset-Digital-Collateralization-Frameworks-and-Strike-Price-Mechanisms.jpg)

Physically-settled futures involve asset delivery, while cash-settled futures involve a cash transfer based on price difference at expiration.

- 
### [Does the Tax Treatment Differ If the Option Is Cash-Settled?](https://crypto.greeks.live/learn/does-the-tax-treatment-differ-if-the-option-is-cash-settled/)
![This abstract geometric visualization portrays a complex spatial intersection of pale cyan and off-white orthogonal beams suggesting the interwoven nature of financial engineering instruments. Spherical forms float across the dark, gradient background implying uncorrelated assets or latent variables within a stochastic process. The central dark node positioned at the fulcrum of the crossing geometry represents the underlying asset price upon which option payoff structures hinge. This scene models the non-linear relationship inherent in managing systemic risk exposure across perpetual swaps and exotic options. Concepts like implied volatility skew gamma scalping and slippage risk are abstracted by the rigid intersecting planes and dark reflective floor acting as a liquidation surface. The composition evokes the intricate balancing act required for efficient capital deployment in decentralized finance leverage protocols demanding precise execution of contingent claims.](https://crypto.greeks.live/wp-content/uploads/2025/10/Interlocking-Cross-Structures-Visualizing-Cryptocurrency-Volatility-Surface-Delta-Hedging-Mechanics.jpg)

Yes, a cash-settled option realizes the entire gain/loss upon closing, avoiding the complexities of underlying asset basis and holding period adjustments.

- 
### [How Does the Volatility of the Underlying Asset Affect the Choice between Physical and Cash Settlement?](https://crypto.greeks.live/learn/how-does-the-volatility-of-the-underlying-asset-affect-the-choice-between-physical-and-cash-settlement/)
![This macro visualization dissects the internal architecture of a precision electromechanical system, suggesting the critical components underlying high-throughput decentralized exchange operations. The visible platter segment, reminiscent of storage media, conceptually embodies the immutable ledger or blockchain state. The articulating arm terminating in a sophisticated optical or sensor assembly symbolizes the rapid execution of complex derivatives contracts like perpetual swaps or options pricing models. It represents minimizing execution slippage through low-latency oracle feeds interfacing with smart contract settlement layers. Key elements touch upon the auditable transparency of consensus mechanisms and the need for near-instantaneous verification underpinning DeFi collateral management and rapid arbitrage across aggregated liquidity pools utilizing complex option strategies like straddles or iron condors denominated in volatile digital assets.](https://crypto.greeks.live/wp-content/uploads/2025/10/Precision-Actuation-Mechanism-Rendering-Illustrating-High-Frequency-Exchange-Data-Latency-Mitigation-Strategies.jpg)

High volatility increases the risk of large cash flows and settlement failure in cash settlement, making physical settlement logistics more predictable.

- 
### [How Does ‘Physical Settlement’ of a Futures Contract Differ from ‘Cash Settlement’?](https://crypto.greeks.live/learn/how-does-physical-settlement-of-a-futures-contract-differ-from-cash-settlement/)
![This close-up highlights a complex electromechanical apparatus interacting with a reflective circular substrate suggesting a data storage or transfer mechanism vital for decentralized finance protocols. The turquoise domed element hovers precisely above a thin metallic strip interacting with the substrate's surface, symbolizing the delicate calibration required for high-frequency options execution or atomic swaps between disparate ledgers. The surrounding dark components and speckled texture evoke a secure, highly engineered environment mirroring the stringent security surrounding private keys and decentralized autonomous organization governance. This visual metaphor emphasizes the analog precision underpinning digital asset management, especially concerning smart contract triggers for options expiration and collateral management across various stablecoin pools. Specific attention is drawn to the potential interpretation as a quantum-resistant cryptographic signature application over a distributed ledger technology backbone.](https://crypto.greeks.live/wp-content/uploads/2025/10/Precision-Actuation-Mechanism-Over-Blockchain-Data-Ledger-Illustrating-Tokenized-Asset-Settlement.jpg)

Physical settlement involves delivery of the crypto asset; cash settlement involves only the monetary difference in value.

- 
### [Does the Tax Treatment Change If a Crypto Derivative Is Physically-Settled?](https://crypto.greeks.live/learn/does-the-tax-treatment-change-if-a-crypto-derivative-is-physically-settled/)
![This close-up depicts a precision-machined central spindle surrounded by a dark substrate exhibiting pie-chart-like sectors in muted teal and gold tones, speckled with particulate matter suggesting operational stress or residue from a decentralized ledger environment. The structure strongly evokes the complex mechanics underlying high-frequency trading execution mechanisms within decentralized finance DeFi infrastructure. Specifically, the segmented ring likely represents state-change indicators in a complex smart contract mechanism governing perpetual futures settlement or dynamic volatility skew adjustments integral to synthetic asset options pricing models. Key elements suggest atomic swap verification protocols or perhaps a visualization of ledger state synchronization across disparate nodes in a permissionless network, where precision controls option Greeks like Theta decay assessment in exotic derivatives. The metallic sheen and internal concentric rings hint at proprietary hardware security modules HSMs underpinning institutional crypto custody solutions required for managing large collateral pools for undercollateralized lending protocols.](https://crypto.greeks.live/wp-content/uploads/2025/10/Macro-View-of-Black-Hardware-Assembly-Featuring-Segmented-Optical-Surface-Indicative-of-On-Chain-Governance-Calibration.jpg)

Physical settlement of a crypto derivative can create a new cost basis and holding period for the acquired crypto, unlike cash settlement.

- 
### [How Can a Market Maker Use the Funding Rate to Execute a ‘Cash-and-Carry’ Trade?](https://crypto.greeks.live/learn/how-can-a-market-maker-use-the-funding-rate-to-execute-a-cash-and-carry-trade/)
![The composition visualizes an inherent tension analogous to complex structured products within Decentralized Finance DeFi lending protocols. A stark, dark background isolates intersecting elements the pale wooden element suggesting underlying collateral or perhaps a staking mechanism juxtaposed against teal metallic girders symbolizing robust centralized exchange CEX architecture or persistent market structure. The dark blue blade crossing centrally represents a leveraged short position or perhaps a specific contract strike price vector slicing through perceived support levels. This intersection embodies the critical moment of option expiration or margin call vulnerability, where directional bets meet systemic friction. Key concepts include liquidity crunch risk asymmetric payoff profiles slippage arbitrage opportunities and the maintenance of dynamic portfolio insurance mechanisms against volatile crypto asset movements demanding constant rebalancing of vega exposure.](https://crypto.greeks.live/wp-content/uploads/2025/10/Asymmetric-Delta-Hedging-Position-Cross-Section-Against-Industrial-Infrastructure-Scaffolding.jpg)

By buying the spot asset (cash) and shorting the perpetual swap (carry), receiving the positive funding rate as a potential risk-free profit.

- 
### [What Is the Primary Difference between a Traditional Futures Contract and a Perpetual Futures Contract?](https://crypto.greeks.live/learn/what-is-the-primary-difference-between-a-traditional-futures-contract-and-a-perpetual-futures-contract/)
![This high-contrast visualization depicts a stylized, polished metallic structure suggesting an engineered component, perhaps symbolizing a secure ledger or a complex financial instrument boundary. A sleek, dark writing implement intersects this structure, resembling a precision execution tool aligning with a critical threshold. The cyan bioluminescence visible beneath the surface layer suggests hidden computational flow or dynamic collateralization within a smart contract environment. This visually abstracts the concept of hedging synthetic assets where a precise catalyst, like a pen stroke, initiates settlement or derivative valuation adjustments near the at-the-money threshold. Keywords manifest as underlying data streams referencing Gamma exposure, collateralized debt positions CDP volatility surfaces, and automated market maker AMM slippage minimization during high-frequency options repricing events across DeFi rails.](https://crypto.greeks.live/wp-content/uploads/2025/10/Quantum-Entanglement-Visualization-Representing-Decentralized-Exchange-Liquidity-Pool-Dynamics-and-Option-Strike-Price-Convergence.jpg)

Traditional futures have an expiration date; perpetual futures do not and use a funding rate for price convergence.

- 
### [What Is the Function of a “Delivery Notice” in a Physically-Settled Contract?](https://crypto.greeks.live/learn/what-is-the-function-of-a-delivery-notice-in-a-physically-settled-contract/)
![This stark visual juxtaposes intersecting structural elements, suggesting the complex layering inherent in structured products and synthetic positioning within decentralized finance DeFi environments. The transparent cyan elements intersect over a muted reflective surface, secured by teal spherical fasteners threaded onto visible screws, symbolizing a controlled, auditable mechanism governing cross-asset allocation and smart contract interaction. This configuration metaphorically represents a secured bilateral agreement or a collateralized debt position CDP mechanism where leveraged exposure necessitates precise margin management and transparent governance across decentralized exchanges DEX order books. The droplets on the acrylic imply liquidity or potential volatility across underlying tokenized assets, demanding robust risk modeling for exotic options pricing methodologies and non-deliverable forwards NDF settlement procedures in algorithmic trading strategies utilizing oracle price feeds.](https://crypto.greeks.live/wp-content/uploads/2025/10/Translucent-Acrylic-Convergence-Securing-Bifurcated-Digital-Asset-Hedging-Instruments.jpg)

A formal notification from the clearing house to the short position holder of their obligation to physically deliver the underlying asset.

- 
### [Give an Example of a Financial Derivative That Is Typically Physically Settled](https://crypto.greeks.live/learn/give-an-example-of-a-financial-derivative-that-is-typically-physically-settled/)
![The highly polished, mirrored surface, potentially representing a decentralized exchange liquidity pool layer or a high-frequency trading memory wafer, reflects a central apparatus. This apparatus features black polymer casings punctuated by metallic bands, strongly suggesting an electromechanical component like a specialized actuator or a proprietary magnetic flux capacitor crucial for on-chain settlement mechanisms. This visual dynamic evokes the tight coupling between real-world physics and digital asset management, specifically concerning limit order book depth and latency arbitrage within DeFi yield farming protocols. The reflection hints at dual layers of transaction verification or collateral staging, essential for complex structured products like perpetual swaps utilizing underlying token collateralization for synthetic asset exposure management, emphasizing precision in execution price discovery.](https://crypto.greeks.live/wp-content/uploads/2025/10/Reflective-Substrate-Interaction-with-Magnetic-Coil-Assembly-Simulating-Decentralized-Exchange-Liquidity-Pools.jpg)

Traditional commodity futures, such as Crude Oil or Gold futures, often require the physical delivery of the asset.

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