Cash settlement vs physical delivery describes how a futures contract is completed at expiry. A cash-settled contract closes through a final price and a cash debit or credit. A physically delivered contract creates delivery obligations for positions that remain open under the contract rules. Traders can usually offset or roll before expiry, but the exact dates and broker deadlines matter.
How cash settlement works
At expiry, the exchange calculates a final settlement price using the method in the contract specification. Open positions are marked to that price. A long or short account then receives or pays the resulting cash amount, and no physical product changes hands.
CME Group’s expiration and settlement lesson says equity-index and interest-rate futures are common cash-settled products, while some precious-metals, foreign-exchange and agricultural contracts also use cash settlement. The product rule, not the asset class alone, determines the method.
| Question | Cash-settled contract | Physically delivered contract |
|---|---|---|
| What ends the contract? | A final settlement price and cash adjustment | The exchange delivery process |
| Can the underlying be delivered? | No | Yes, if the position remains eligible |
| What must you check? | Final-price method and last trading day | Notice dates, delivery rules and broker cutoff |
| Does “cash” remove price risk? | No | No |
How physical delivery works
In a physically delivered contract, a long can be assigned to take delivery and a short can be assigned to make delivery. The contract specification sets the eligible grade, quantity, location, documents and timetable. Delivery is an exchange process, not a shipment arranged informally between two screen names.
CME Group’s cash settlement versus physical delivery explainer notes that positions still open after the relevant notice or position day can enter the matching process. The maker and taker of delivery then follow the exchange’s delivery procedure.
Retail brokers and futures prop firms may require positions to be closed well before an exchange deadline. That house cutoff can be earlier than the last trading day or first notice day. Read the broker rule as well as the exchange contract.
Daily settlement is not final settlement
Every futures account is marked to a daily settlement price while the contract remains open. Daily settlement moves variation money, supports margin calculations and establishes a reference for the next session. It does not, by itself, end the contract.
Final settlement happens at expiry and determines the amount or invoice price used to discharge the contract. CME’s 2025 explainer says the final price in a physically delivered contract becomes the invoice price; in a cash-settled contract, it is the price to which the remaining financial obligations are marked.
Our futures settlement price guide explains daily marks. For the dates that control delivery risk, see first notice day vs last trading day.
Worked example: cash settlement
Suppose one contract has a $50 multiplier and the final settlement price is 4 points above the previous day’s settlement. The final variation is 4 × $50 = $200 to the long and $200 from the short. The example only shows the final price movement; fees and earlier daily variation are separate.
A physical contract cannot be reduced to the same cash-only example. The invoice and delivery obligations depend on its grade, quantity, location and timing rules.
Expiry checklist
- Open the current exchange contract specification for the exact symbol and month.
- Confirm whether final settlement is cash or physical delivery.
- Record the last trading day, first notice day and any position or delivery-notice date.
- Read the final-settlement-price method and source.
- Check the broker or prop firm’s earlier closeout deadline.
- Decide whether to offset, roll or hold before the earliest relevant cutoff.
- Do not rely on a platform label alone; verify the exchange rule.
If you plan to roll rather than settle, our futures contract expiration guide explains the choices. The contract-month code is covered in futures contract month codes.
Common questions
Are index futures physically delivered?
Major equity-index futures are generally cash settled, but traders should verify the exact contract specification rather than infer the method from the product name.
Can a broker close a position before the exchange deadline?
Yes. A broker or prop firm can impose an earlier house cutoff to avoid delivery or expiration risk.
Does cash settlement mean no money changes hands before expiry?
No. Futures are marked to market daily. Cash settlement describes the final method at expiry, not the absence of daily variation.
Sources
- CME Group — Cash Settlement vs. Physical Delivery, March 25, 2025
- CME Group — Get to Know Futures Expiration and Settlement
- CME Group — Final Settlements
This guide is educational and does not provide trading advice. Exchange and broker rules can change.