Futures: Types of Settlement

Here are two types of settlements in the futures market – physical settlement and cash settlement. A futures contract is physically settled if the underlying asset is actually delivered in exchange for the settlement price. This is not the case with cash settlement, where no physical delivery of the underlying asset takes place...

Instead, the futures contract is settled for money depending on what the market value of the contract is expected to be at maturity. Speculators opt for cash settlements, which those with interest in the underlying commodity opt for physical settlement...

The futures market is not for the novice trader. It is critical that you check your financial situation, investing goals and risk appetite before venturing into futures trading.