Markets · 6 pages · 12 min

Why a contract can be settled in cash

Cash settlement pays the price difference in money, so the underlying good never has to be delivered.

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From the opening

Cash settlement ends a contract by paying the money difference between the agreed price and a final reference price, instead of handing over the commodity, the bond, or the basket of shares. The gain or loss is settled in cash, and no shipment has to move for the contract to be finished. The opening covers expiry pays a cash difference, the reference price sets the mark, and no goods have to move.

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Inside

Expiry pays a cash difference
The reference price sets the mark
No goods have to move
Delivery is a different design
Where the idea stops applying
A distinction worth keeping

Sources

Cash-settled futures
Final settlement price of an index future

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Why a contract can be settled in cash

From the opening

Inside

Sources

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