Physical settlement
Also called: delivery settlement, cash settlement
Settling a derivative at expiry by delivering the underlying itself, rather than paying the difference in cash.
With cash settlement, only the gain or loss changes hands. With physical settlement, an in-the-money position can require buying or delivering the full quantity of the underlying. Settlement methods are set by exchange rules and can change, so check current contract specifications.
Learn more in these lessons
- Expiry, gap and settlement risksWhat can go wrong with a derivative position around expiry and overnight?
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