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

The key difference lies in the settlement mechanism upon expiration. A physically-settled contract requires the seller to deliver the actual underlying asset, like a commodity or a specific cryptocurrency, to the buyer.

Conversely, a cash-settled contract settles in cash. The final settlement amount is simply the monetary difference between the contract price and the market price of the underlying asset at expiration.

This eliminates the logistical complexities of physical delivery.