Physical Delivery vs Cash Settlement

The two ways futures end, handing over goods or paying a cash difference against an index.

Overview

Physical delivery, the old standard, anchors futures to reality: whoever holds the contract at expiry can take the goods at the delivery point, and the threat keeps paper prices honest with the warehouse. First notice days and delivery months drive the professional calendar, and speculators exit before delivery, leaving commercial interests. Cash settled contracts lean hogs against carcass values and milk against component formulas, letting hedgers offset physical business without logistics. Exchanges police settlement indices against manipulation since the cash number moves real money. Delivery touches a small share of volume, but the option of it prices everything.