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

The key difference lies in the settlement at expiration. A physically-settled contract requires the seller to deliver the underlying asset to the buyer, and the buyer must pay for and take delivery.

A cash-settled contract, however, settles the difference between the contract price and the market price in cash. No physical exchange of the underlying asset occurs, making it simpler for financial instruments like indices or non-storable commodities.