Physical Settlement
Physical settlement is the delivery of the underlying asset to the owner of an option or futures contract at the contract’s expiration date.
Physical settlement is the delivery of the underlying asset to the owner of an option or futures contract at the contract’s expiration date. For example, if two parties enter into a physically settled six-month gold futures contract at a futures price of $20.00, the buyer is obligated to purchase a specified amount of physical gold on the settlement date, regardless of the spot price of gold on that date.
Often, traders will factor the cost of carry into the futures price. The cost of carry is any expenses for storing, shipping, and insuring the physical commodity over a period of time. Not all options or futures contracts are physically settled.
Physical settlement is most common with commodities and bonds contracts, although it can occur with other financial instruments. Physical settlement is carried out by clearing brokers.
Physical Settlement is a concept relevant to Bitcoin, finance, or blockchain technology that investors should understand. Onramp's comprehensive Bitcoin glossary provides clear explanations of Physical Settlement and hundreds of other terms to support informed investment decisions.
Frequently Asked Questions
What is Physical Settlement?
Physical Settlement is a term used in Bitcoin, finance, or blockchain technology. Understanding Physical Settlement helps investors and enthusiasts build a stronger foundation of knowledge about digital assets and financial markets.
Why is Physical Settlement important?
Physical Settlement is relevant to understanding how Bitcoin, financial markets, or blockchain technology operates. Knowledge of such concepts helps investors make better-informed decisions about their portfolios.
Where can investors learn more about Physical Settlement?
Onramp's Bitcoin glossary offers detailed, accessible explanations of Physical Settlement and over 500 other terms related to Bitcoin, finance, and blockchain technology for investors at all experience levels.
