# What Is the Difference between Cash Settlement and Physical Settlement? ⎊ Path

**Published:** 2025-12-05
**Author:** Greeks.live
**Categories:** Path

---

## 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.

- [What Is the Main Difference between a ‘Cash-Settled’ and ‘Physical-Settled’ Option?](https://learn.greeks.live/path/what-is-the-main-difference-between-a-cash-settled-and-physical-settled-option/)

- [What Is the Difference between “Virtual Size” and “Actual Size” of a Transaction?](https://learn.greeks.live/path/what-is-the-difference-between-virtual-size-and-actual-size-of-a-transaction/)

- [What Is the Difference between Physical and Cash Settlement in Tokenized Derivatives?](https://learn.greeks.live/path/what-is-the-difference-between-physical-and-cash-settlement-in-tokenized-derivatives/)

- [How Does Cash Settlement Differ from Physical Settlement in Futures Contracts?](https://learn.greeks.live/path/how-does-cash-settlement-differ-from-physical-settlement-in-futures-contracts/)

- [How Is the Settlement Process Different for a Physically-Settled versus a Cash-Settled Derivative?](https://learn.greeks.live/path/how-is-the-settlement-process-different-for-a-physically-settled-versus-a-cash-settled-derivative/)

- [What Is ‘Cash Settlement’ versus ‘Physical Settlement’ for Crypto Options?](https://learn.greeks.live/path/what-is-cash-settlement-versus-physical-settlement-for-crypto-options/)

- [What Is the Difference between Cash-Settled and Physically-Settled Futures?](https://learn.greeks.live/path/what-is-the-difference-between-cash-settled-and-physically-settled-futures/)

- [Explain the Difference between Cash Settlement and Physical Delivery in Futures](https://learn.greeks.live/path/explain-the-difference-between-cash-settlement-and-physical-delivery-in-futures/)

## Glossar

### [Underlying Asset](https://learn.greeks.live/area/underlying-asset/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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](https://learn.greeks.live/area/physical-settlement/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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](https://learn.greeks.live/area/crypto-derivatives/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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](https://learn.greeks.live/area/cash-settlement/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

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.

## Discover More

### [What Is the Difference between a Physical Commodity and a Commodity Derivative?](https://learn.greeks.live/path/what-is-the-difference-between-a-physical-commodity-and-a-commodity-derivative/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Difference between a Physical Commodity and a Commodity Derivative?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-Analysis-of-Tokenized-Asset-Structure-Fluctuation-Indicating-Liquidity-Pool-Instability.webp)

Physical commodity is the actual raw material; commodity derivative is a financial contract based on the commodity's price.

### [Differentiate between Cash Settlement and Physical Settlement for Derivatives](https://learn.greeks.live/path/differentiate-between-cash-settlement-and-physical-settlement-for-derivatives/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Differentiate between Cash Settlement and Physical Settlement for Derivatives](https://learn.greeks.live/wp-content/uploads/2025/10/Imbalance-Vector-Equilibrium-in-Decentralized-Finance-Derivatives-Pricing-Structures.webp)

Cash settlement pays the difference in value; physical settlement requires delivery of the underlying asset.

### [How Does the Settlement Price Mechanism Differ between Physically-Settled and Cash-Settled Futures?](https://learn.greeks.live/path/how-does-the-settlement-price-mechanism-differ-between-physically-settled-and-cash-settled-futures/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Settlement Price Mechanism Differ between Physically-Settled and Cash-Settled Futures?](https://learn.greeks.live/wp-content/uploads/2025/10/Dynamic-Bifurcation-of-Cream-and-Obsidian-Surfaces-Representing-Decentralized-Finance-Option-Strike-Pricing-Mechanisms.webp)

Physical settlement price is the invoice for asset transfer; cash settlement price determines the final P&L payment.

### [In Cryptocurrency, What Are the Implications of Physical Settlement for Custody and Security?](https://learn.greeks.live/path/in-cryptocurrency-what-are-the-implications-of-physical-settlement-for-custody-and-security/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![In Cryptocurrency, What Are the Implications of Physical Settlement for Custody and Security?](https://learn.greeks.live/wp-content/uploads/2025/10/Streamlined-Cryptographic-Asset-Custody-Encapsulation-Representing-Decentralized-Autonomous-Organization-Governance-Module.webp)

Requires secure private key management and institutional custody, increasing operational and security risk.

### [What Are the Tax Implications of Cash Settlement versus Physical Settlement?](https://learn.greeks.live/path/what-are-the-tax-implications-of-cash-settlement-versus-physical-settlement/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Tax Implications of Cash Settlement versus Physical Settlement?](https://learn.greeks.live/wp-content/uploads/2025/10/Symmetrical-Quantum-Entanglement-Applied-to-Decentralized-Finance-Volatility-Surface-Calibration.webp)

Cash settlement is a capital gain/loss on the derivative; physical settlement may trigger two taxable events: on the option and on the asset.

### [How Does the Lack of Physical Delivery Impact the Liquidity of Cash-Settled Futures?](https://learn.greeks.live/path/how-does-the-lack-of-physical-delivery-impact-the-liquidity-of-cash-settled-futures/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Lack of Physical Delivery Impact the Liquidity of Cash-Settled Futures?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-Analysis-of-Interlocking-Legacy-Hardware-Components-Representing-Digital-Asset-Infrastructure-Opacity.webp)

It increases liquidity by removing logistical burdens, attracting more financial participants, and resulting in tighter spreads.

### [How Does a Physical Settlement Guarantee the Delivery of a Specific Quality of the Underlying Asset?](https://learn.greeks.live/path/how-does-a-physical-settlement-guarantee-the-delivery-of-a-specific-quality-of-the-underlying-asset/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does a Physical Settlement Guarantee the Delivery of a Specific Quality of the Underlying Asset?](https://learn.greeks.live/wp-content/uploads/2025/10/Spherical-Volatility-Surface-Abstraction-Contrasting-Beige-and-Dark-Hues-Signaling-Option-Premium-Dynamics.webp)

The contract specification explicitly defines the required grade, type, and location of the deliverable asset, which the clearing house enforces.

### [What Is the Difference between Physical and Cash Settlement in Derivatives Contracts?](https://learn.greeks.live/path/what-is-the-difference-between-physical-and-cash-settlement-in-derivatives-contracts/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Difference between Physical and Cash Settlement in Derivatives Contracts?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Machining-of-Spindle-Assembly-Interfacing-with-High-Reflectivity-Digital-Asset-Ledger-Substrate.webp)

Physical settlement is delivery of the actual asset; cash settlement is the transfer of a cash equivalent of the profit/loss difference at expiration.

### [What Is 'Cash Settlement' in Futures Contracts and How Does It Relate to Delivery Squeezes?](https://learn.greeks.live/path/what-is-cash-settlement-in-futures-contracts-and-how-does-it-relate-to-delivery-squeezes/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is 'Cash Settlement' in Futures Contracts and How Does It Relate to Delivery Squeezes?](https://learn.greeks.live/wp-content/uploads/2025/10/Stratified-Geometric-Abstraction-Modeling-Decentralized-Exchange-Liquidity-Pool-Stratification-and-Volatility-Skew-Profiling.webp)

Cash settlement replaces physical delivery with a monetary exchange, thus directly preventing any physical delivery squeeze.

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**Original URL:** https://learn.greeks.live/learn/what-is-the-difference-between-cash-settlement-and-physical-settlement/
