What Is the Primary Difference between Cash-Settled and Physically-Settled Futures Contracts?
The key difference lies in the settlement process at expiration. A physically-settled contract requires the seller to deliver the actual underlying asset, and the buyer to take delivery.
A cash-settled contract, however, settles by paying the difference between the contract price and the final settlement price in cash. This eliminates the logistical complexities of asset transfer.
Both types are used for price discovery and risk management.
Glossar
Margin for Cash Settled
Margin ⎊ Margin for cash-settled derivatives represents the collateral required to cover potential losses from adverse price movements before the contract expires.
Cash Settled Futures Explained
Contract ⎊ Cash Settled Futures represent a derivative agreement where the final obligation is discharged via a net cash payment rather than the physical exchange of the underlying cryptocurrency asset.
Physically Settled Contracts
Delivery ⎊ Physically settled contracts, within cryptocurrency derivatives, necessitate the actual transfer of the underlying asset upon contract expiration or exercise, differing fundamentally from cash-settled alternatives.
Settlement Price Determination
Valuation ⎊ Settlement Price Determination within cryptocurrency options and derivatives represents a crucial process for accurately quantifying the financial obligation at contract expiry or exercise.
Physically Settled Bitcoin
Settlement ⎊ Physically settled Bitcoin refers to derivative contracts where the actual underlying cryptocurrency, rather than a cash equivalent, is exchanged upon expiration.
Futures Contract Expiration
Settlement ⎊ Futures contract expiration denotes the culmination of an agreement to buy or sell an asset at a predetermined price on a specified future date, fundamentally impacting price discovery within cryptocurrency derivatives markets.
Physically Settled versus Cash Settled
Settlement ⎊ The distinction between Physically Settled versus Cash Settled derivatives defines the method of contract fulfillment upon expiration, impacting the final transfer of value.
Physically Settled Futures Contract
Delivery ⎊ A physically settled futures contract mandates the actual exchange of the underlying cryptocurrency asset upon contract expiration, rather than a cash equivalent payment.
Cash Settled Products
Definition ⎊ Cash Settled Products are a category of financial derivatives, including futures and options, whose contractual obligations are fulfilled by a monetary transfer rather than the exchange of the underlying asset.
Cash Settled Vs Physical
Comparison ⎊ Derivatives contracts are differentiated by their final settlement protocol, requiring precise analytical distinction between cash-settled and physically-delivered instruments.