What Is the Difference between Cash Settlement and Physical Settlement?
Cash settlement concludes a derivative contract by exchanging the monetary difference between the contract price and the market price, with no physical asset delivery. Physical settlement requires the seller to deliver the actual underlying asset to the buyer in exchange for the agreed-upon contract price.
Crypto derivatives mostly use cash settlement, typically with stablecoins.
Glossar
Underlying Asset
Foundation ⎊ The concept of an Underlying Asset, within cryptocurrency derivatives and financial markets, establishes the core reference point for valuation and risk transfer.
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.
Crypto Derivatives
Valuation ⎊ Crypto derivatives represent financial contracts whose value is derived from an underlying cryptocurrency asset, extending traditional derivative concepts to the digital asset space.
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.