SETTLEMENT & EXPIRATION IN FUTURES
Some futures settle in cash, some settle physically. Holding a physically-settled contract past expiration is how retail traders end up with a barge of crude oil delivered to their account.
Cash-settled futures (equity indices like ES, most financial futures) close out at expiration based on a final settlement price. Your account is debited or credited the difference and the position disappears. No surprises.
Physically-settled futures (crude oil, gold, agricultural products, most metals) require actual delivery of the underlying commodity. If you hold to expiration, you're contractually obligated to deliver or take delivery — which for most retail accounts is impossible and expensive to unwind.
Brokers typically auto-close physically-settled positions a few days before first notice day, but you should never rely on that. Know the first notice day for any contract you're trading and close (or roll) at least one full session earlier. Liquidity often disappears in the final week before expiration as commercial hedgers exit.
April 2020 was the cautionary tale: WTI crude futures went negative because traders holding the May contract couldn't take physical delivery and had to pay anyone willing to take the position. Cash-settled instruments tracking crude were unaffected. Know which kind you're holding before the calendar makes the decision for you.
Takeaways
- →Cash-settled contracts disappear cleanly at expiration.
- →Physically-settled contracts can deliver real commodities into your account.
- →Always close or roll before first notice day — don't rely on the broker.
- →Liquidity dries up in the final week. Roll into the next month earlier than you think.