# Physical Delivery vs Cash Settlement

> Physically settled futures end with the actual asset changing hands. Learn the delivery process, who delivers, grades and locations, and how speculators avoid it.

Source: https://learn.tradelabsai.com/futures/physical-delivery/  
Track: Futures · Level: Advanced · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Physical Delivery vs Cash Settlement", https://learn.tradelabsai.com/futures/physical-delivery/

Some futures contracts settle by physical delivery: when the contract ends, the seller delivers the actual commodity, bond or currency, and the buyer pays the futures price for it. Others settle in cash. Only a small share of physically settled futures actually reach delivery, because most traders close or roll positions first. But the possibility of delivery is what keeps futures prices tied to the real market, and getting caught in delivery by accident can be expensive.

## Cash vs physical settlement

| | Cash settled | Physically settled |
|---|---|---|
| At expiry | Final gain or loss paid in cash | Asset changes hands |
| Examples | E-mini S&P 500, VIX, most index futures, many crypto futures | WTI crude oil, gold, corn, soybeans, Treasury bonds, currency futures |
| Delivery risk for speculators | None | Yes, if held too long |

See [Settlement](https://learn.tradelabsai.com/markets/settlement/).

## How delivery works

The process differs by contract, but the general steps are:

1. **First notice day:** the first day sellers can notify the exchange of intent to deliver. Long holders after this date may be assigned delivery. See [First Notice Day and Last Trading Day](https://learn.tradelabsai.com/futures/first-notice-day/).
2. **Notice of intent:** a short holder submits a delivery notice through their clearing firm.
3. **Assignment:** the clearing house assigns the delivery to a long holder, often the oldest long position.
4. **Delivery:** the asset is transferred, for example through warehouse receipts for grains, vault receipts for metals, a pipeline or storage transfer for crude, or a book entry transfer for Treasuries.
5. **Payment:** the long pays the invoice price, which is the settlement price adjusted for grade, location or conversion factors.

## Delivery specifications

| Contract | What is delivered | Where |
|---|---|---|
| WTI crude oil (CL) | 1,000 barrels of light sweet crude | Cushing, Oklahoma |
| Gold (GC) | 100 troy ounces in bars of specified fineness | Exchange approved vaults |
| Corn (ZC) | 5,000 bushels via shipping certificates | Approved locations on the Illinois River |
| 10 year Treasury note (ZN) | Notes from a deliverable basket, adjusted by conversion factors | Federal Reserve book entry system |
| Euro FX (6E) | €125,000 | Bank accounts |

## Seller's options

In many contracts, the short chooses what, when and where to deliver within the rules. In Treasury futures, the short picks which eligible bond to deliver and will choose the cheapest to deliver. These choices have value and are priced into the futures. See [Treasury Bills, Notes and Bonds](https://learn.tradelabsai.com/bonds-credit/treasury-bills-notes-and-bonds/).

## How speculators avoid delivery

- **Close or roll before first notice day** for long positions, and before the last trading day for shorts.
- **Know your broker's rules:** many retail brokers require clients to exit physically settled contracts several days before first notice day and will liquidate positions that remain.
- **Trade cash settled alternatives** where possible, such as some micro or financially settled versions.

**Watch out: Delivery is not a quick fix**
Retail brokers usually cannot accept delivery of 1,000 barrels of oil or 5,000 bushels of corn on your behalf. If you are long near expiry, your broker may close your position at whatever price is available, which can be poor in thin markets.

## When delivery mechanics hit prices

On 20 April 2020, the May WTI crude oil contract fell to minus $37.63 a barrel on its second to last trading day. Storage at Cushing was nearly full, and holders of long positions who could not take delivery were desperate to sell. The episode showed how physical delivery constraints can dominate prices near expiry. See [Crude Oil](https://learn.tradelabsai.com/commodities/crude-oil/) and [Storage and Inventories](https://learn.tradelabsai.com/commodities/storage-and-inventories/).

## Why delivery matters even if you never take it

The threat of delivery forces futures to converge to the physical market at expiry. If futures were far above spot near expiry, traders would buy the physical asset and deliver it; if far below, they would buy futures and take delivery. This arbitrage keeps futures honest. See [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/).

## Frequently asked questions

### What is physical delivery in futures?

A settlement method in which the seller delivers the actual asset to the buyer at the futures price when the contract ends.

### How do I avoid physical delivery?

Close or roll long positions before first notice day, and short positions before the last trading day, and follow your broker's deadlines.

### What percentage of futures result in delivery?

Only a small share. Most positions are closed or rolled before delivery, though the exact share varies by contract.

Next, learn the key date for avoiding delivery in [First Notice Day and Last Trading Day](https://learn.tradelabsai.com/futures/first-notice-day/).

## Continue learning

- Next lesson: [First Notice Day and Last Trading Day](https://learn.tradelabsai.com/futures/first-notice-day/)
- Previous lesson: [Continuous Futures and Back-Adjustment](https://learn.tradelabsai.com/futures/continuous-futures/)
- Related: [Continuous Futures and Back-Adjustment](https://learn.tradelabsai.com/futures/continuous-futures/): Continuous futures stitch expiring contracts into one long price series. Learn back adjustment, ratio adjustment, roll rules and why they matter for backtests.
- Related: [First Notice Day and Last Trading Day](https://learn.tradelabsai.com/futures/first-notice-day/): First notice day is when sellers can start delivering on physically settled futures. Learn what it means, how it differs from last trading day and how to plan.
- Related: [Contract Specifications](https://learn.tradelabsai.com/futures/contract-specifications/): Contract specifications define a futures contract's size, tick, months, hours and settlement. Learn every field, with examples for E-mini S&P, crude oil and gold.
- Related: [Settlement](https://learn.tradelabsai.com/markets/settlement/): Settlement is when cash and securities actually change hands after a trade. Learn settlement cycles like T+1, cash vs physical settlement and how it affects you.
- Related: [Rolling Futures Contracts](https://learn.tradelabsai.com/futures/rolling-futures-contracts/): Rolling moves a futures position from an expiring contract to a later one. Learn when to roll, how to use calendar spreads, roll costs and common roll schedules.
- Related: [Cash-and-Carry Arbitrage](https://learn.tradelabsai.com/futures/cash-and-carry-arbitrage/): Cash and carry arbitrage buys an asset and sells its futures when futures are rich versus carry costs. Learn the formula, gold, index and crypto examples, and risks.