A futures contract is an agreement to buy or sell an underlying asset on a previously defined date. What happens on the expiration date of the futures contract and what you have to pay attention to, you will learn on this page.
Settlement method
The settlement method distinguishes between physical delivery of the underlying and cash settlement.
Physical delivery
Futures are also referred to as commodity futures. This expresses that the original purpose of a futures contract was/is to buy and sell physical commodities.
By buying a futures contract at today's price, the buyer commits to buy the commodity at a certain date in the future (at today's price) at the terms specified in the contract details. The seller commits to sell or deliver the commodity.
In the contract details of each futures you can read whether the contract is physically or cash settled.
Fututes contract with the settlement method "Physical Delivery
Physical delivery not possible for CapTrader customers
Those who are dealing with futures trading for the first time may be afraid of suddenly being confronted with the physical delivery of a commodity.
For private traders, however, there is no risk of being obligated to buy or deliver an underlying. If you fail to close a futures contract that is based on a physical delivery of the commodity in time, you will first receive a warning and a request to close the trade. If you do not comply with this, the trade will be automatically closed for you to prevent physical delivery in any case. This procedure is even mandatory for regulatory reasons to protect private traders.
Cash Settlement / Cash Equalization
A cash settlement can be compared to the manual closing of a position. Here, the settlement price is determined by the exchange on the expiration date and the difference is credited or debited to your account.
Futures contract with the settlement method "Cash
Frequently asked questions about futures trading
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Each futures contract has a maturity date on which the contract is settled. The contract is either settled in cash between the buyer and the seller, or physical delivery takes place. However, the latter is excluded for private traders and futures contracts with the corresponding settlement method must be closed beforehand.
In the case of a cash settlement, the difference between the buying and selling prices or the settlement price of the exchange on the maturity date of the contract is credited to or deducted from your account.
In the case of physical delivery, the buyer is obliged to purchase the underlying asset at the terms and conditions specified in the contract details. The seller is obliged to deliver the commodity. Private traders must close contracts with a physical delivery before the maturity date. Otherwise, the position is closed by the broker to prevent physical delivery.
The settlement method can be found in the contract details. You can view them on the website of the respective exchange or in the Trader Workstation (double-click on the futures contract).