What Is the Key Difference between Cash-Settled and Physically-Settled Futures Contracts?
Physically-settled futures require the actual delivery of the underlying asset upon contract expiration. Cash-settled futures do not involve physical delivery; instead, the difference between the contract price and the underlying asset's price at expiration is paid in cash.
Most crypto perpetual futures are cash-settled, simplifying the process and avoiding the logistics of asset transfer.
Glossar
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.
Contract Price
Definition ⎊ Contract price refers to the agreed-upon price at which a derivative contract, such as an option or future, is bought or sold.
Basis Risk
Exposure ⎊ The core of basis risk within cryptocurrency derivatives, particularly options, stems from the imperfect correlation between the price movements of the underlying asset and its derivative contract.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.
Crypto Futures
Product ⎊ Crypto futures are standardized, exchange-traded contracts obligating the holder to buy or sell a specific quantity of a cryptocurrency at a predetermined price on a specified future date.