Definition of Cash settlement:
For example, the buyer of a spot cotton futures contract should pay the difference between the spot cotton price and the futures price instead of using the physical quantity of cotton. This is different from physical settlement, where the basic tool is provided.
Cash settlement is a settlement method used for some futures and options contracts in which the financial instrument seller does not provide maturity or real (physical) underlying asset at the time of year, but transfers his cash position. For sellers who don't really want to own the basic barrier, cash settlement is a much easier way to trade and options in the future. Liquid contracts are a major cause of speculation and, as such, the derivatives market has a lot of liquidity.
The process by which futures or options contracts are settled on a currency exchange, not the supply of physical goods. Financial instruments use the cash settlement process.
How to use Cash settlement in a sentence?
- Cash settlement allows investors to bring liquidity to the derivatives market.
- Contracts that end in cash take less time and cost less to arrive on time.
- If there is no physical supply of the asset during the year or maturity, the derivative transaction is settled in cash. Instead, contracts are settled in cash.
Meaning of Cash settlement & Cash settlement Definition