zpostcode
Futures delivery basics: Cash vs. physical
Dec 19, 2025 1:22 AM

  

Futures delivery basics: Cash vs. physical1

  No one will dump commodities in your driveway.© Faraways/stock.adobe.com, © BillionPhotos.com/stock.adobe.com; Photo illustration Encyclopædia Britannica, IncThe concept of delivery is fundamental to the origin story of the American futures market, going all the way back to the years before the Civil War when a group of grain merchants gathered at what became the Chicago Board of Trade to buy and sell crops. Sellers were expected to “deliver” actual grain to buyers. The futures delivery process has changed greatly since, while the persistent myth of an unwitting futures trader getting a truckload of corn dumped in their driveway is just that—a myth.

  Nonetheless, delivery risks still exist for anyone trading futures, particularly for contracts that are “physically settled” (versus those that are settled with a cash transfer at the end of the contract’s life).  The mechanics and nuances of physical settlement, such as “first notice day,” vary depending on the market, so it’s important to fully understand how futures delivery works.

  What is delivery in futures markets?Delivery is the process through which sellers of futures contracts fulfill their obligations by transferring the underlying asset to buyers, who must accept and pay for it. While most futures traders—speculators in particular—have no intention of taking delivery, the possibility exists until a position is closed. (As a reminder, futures contract buyers agree to purchase the underlying asset at a predetermined price on a specific future date; similarly, sellers agree to deliver that asset.)

  The delivery process for every futures market is detailed under the contract specifications (“contract specs”), which also cover other important information, such as contract and tick sizes, contract value, daily price limits, and trading hours.

  Physical delivery versus cash settlementFutures contracts have two primary types of delivery mechanisms. Anyone considering futures trading needs to fully comprehend the difference.

  Physical deliveryThe buyer can take physical delivery of an actual commodity—say, 1,000 barrels of crude oil, 5,000 bushels of soybeans, or 25,000 pounds of copper, based on the contract specs for those futures markets.

  Where the actual commodity changes hands varies depending on the contract. It won’t be dropped on your doorstep. For West Texas Intermediate crude oil futures (the U.S. benchmark), delivery takes place at a large oil storage and pipeline transit facility in Cushing, Oklahoma. For corn and soybeans, deliveries are transacted at a handful of licensed grain storage depots near Chicago and along the Illinois River, in the middle of the prime U.S. crop-growing region.

  Agricultural commodities: Corn, soybeans, wheat, cattle, hogsForeign currencies (FX): Japanese yen, British pound, euroEnergy: Crude oil, natural gas, RBOB gasoline (but note that CME Group’s “micro” energy products contracts are cash settled)Interest rates: Treasury bonds and notesMetals: Gold, silver, copperFX futures settle through bank transfers. Treasury futures settle through the delivery of an eligible bond via the Fedwire Securities Service (developed and operated by the Federal Reserve)—not to anyone’s front door.

  Cash (aka “financial”) settlementFor cash-settled futures, all contracts that are still open at expiration are settled to the difference between the contract’s trade price and the final settlement price. Traders receive debits or credits to their accounts depending on whether the position made or lost money.

  CryptocurrenciesMicro energy (1/10 of full-size contracts; designed for smaller retail traders)Equity indexes (e.g., S&P 500, Nasdaq-100)EurodollarsSave the date: First notice day is a big dealFor physically settled contracts, two critical dates bookend the delivery process: first notice day/date and last trading day/date.

  First notice day sets the futures delivery process in motion. On first notice day, a futures exchange or its affiliated clearinghouse notifies long and short holders of physically settled futures contracts that they may be required to take or make delivery of the underlying commodity. On this day, short position holders indicate their intention to deliver, and the clearinghouse begins the delivery process by matching short and long positions through either a random process or a first-in, first-out (“FIFO”) system. During the delivery period, clearinghouses publish daily delivery reports so long positions know if they’ve been assigned.

  Last trading day marks the final day a contract trades before it expires (“goes off the board,” in trader lingo). After this date, any remaining open positions must be settled through delivery or cash settlement, depending on the contract specifications.

  The time frame between first notice day and last trading day varies depending on the market. For many of CME Group’s physically settled commodities, first notice day is roughly two to four weeks before expiration, or last trading day. (CME’s contract specs include a calendar listing the first notice day and other key dates for every contract month.)

  Delivery risks for individual investors and tradersBy the time first notice day arrives, a futures contract is near the end of its life. Liquidity and trading volume has dwindled; many professional traders have long since moved on, or “rolled” their positions into contracts with later expirations.

  Because of this reduced liquidity and the potential for heightened price volatility, the period between first notice day and last trading day is particularly risky for retail investors who don’t intend to make or take delivery. Many retail brokers will automatically close clients’ futures positions before first notice day to protect the client—and the broker—from unwanted delivery obligations. There’s really no good reason a retail trader needs to be in this particular nook of the markets.

  Among other risks, taking delivery requires paying the full value of the underlying asset, not just the margin you’ve posted. For example, a single gold futures contract represents 100 troy ounces, worth around $385,000 at 2025 prices. The failure to close a futures position before delivery may prompt a broker to liquidate the position at market prices, which could generate unexpected losses.

  Protection from unwanted deliveryThere are a few steps individual investors and traders can take to protect themselves from delivery risks:

  Know your dates. Mark the first notice day and last trading day on your calendar for any contract you trade.Close positions early. Consider closing positions at least a week before first notice day to avoid delivery complications.Use calendar spreads. Rolling positions forward by simultaneously closing the near-month contract and opening a more distant one can help avoid delivery while maintaining market exposure.Know your broker’s policies. Some brokers automatically close positions before first notice day, while others may allow you to hold contracts through delivery.Trade cash-settled contracts. If you’re concerned about delivery, focus on futures contracts that settle in cash rather than physically.The bottom lineFutures can offer opportunities for active individual traders and investors who are regularly wired into the markets and have a higher tolerance for risk. The delivery process is one of several potential risk factors that must be considered. Although delivery is fundamental to the futures markets, it presents challenges for individual investors. By understanding the delivery process and associated dates, you can navigate futures markets more safely.

  References101 Overview: Delivery | cmegroup.comWhat Is First Notice? | support.tastytrade.comLearn about the Treasuries Delivery Process | cmegroup.com

Comments
Welcome to zpostcode comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Recommend >
Arthropleura
  Arthropleura, genus of exceptionally large extinct millipede-like arthropods that thrived from the Viséan Age of the Carboniferous Period to the Asselian Age of the Permian Period (346.7 million to 293.52 million years ago) and are known from their fossilized exoskeletons. Members of Arthropleura are the largest known arthropods in Earth’s history, with an estimated length exceeding 2.6 meters (8.5 feet)—roughly...
reticulated python
     reticulated python (Malayopython reticulatus)Reticulated python (Malayopython reticulatus) coiling around a branch. One individual of this species of Asian python attained a length of 10 meters (32.8 feet).(more)reticulated python, (Malayopython reticulatus), species of giant constricting snake belonging to the python family, Pythonidae, and known for being the longest living snake in the world, with the largest recorded individual measuring 10...
megamouth shark
     megamouth shark (Megachasma pelagios)Schoolchildren looking into the tooth-lined mouth of a 4.2-meter- (13.8-foot-) long preserved megamouth shark (Megachasma pelagios) specimen at Tokai University Marine Science Museum in Shizuoka, Japan.(more)megamouth shark, (Megachasma pelagios), species of large filter-feeding sharks inhabiting the continental shelf and open-ocean regions of tropical and temperate oceans worldwide. The species is found between latitudes 40° N and...
American alligator
  American alligator, (Alligator mississippiensis), species of alligator inhabiting freshwater rivers, lakes, and swamps and brackish waters in the Southern U.S. and northeastern Mexico. The alligator’s geographic range extends from the Mexican states of Coahuila, Nuevo León, and Tamaulipas northeastward to Oklahoma and Arkansas and eastward through the Gulf Coast to North Carolina, South Carolina, Georgia, and Florida. The species is...
Information Recommendation
Swedish History Is Evident in These 14 Buildings
      Sweden’s history as a sovereign state stretches back a thousand years, though its boundaries were often changing until the early 19th century. These 14 buildings provide useful snapshots of how the country’s distant past has influenced its more recent history.   Earlier versions of the descriptions of these buildings first appeared in 1001 Buildings You Must See...
Quetzalcoatlus
  Quetzalcoatlus, genus made up of two species of giant pterosaurs classified in the family Azhdarchidae, which contains some of the largest known flying animals. Both species lived during the Maastrichtian Age (72.1 million to 66 million years ago) of the Cretaceous Period. One of them, Quetzalcoatlus northropi, is widely believed to have been the largest flying creature that ever lived....
The Largest Islands in the World
      Quite a few islands around the world are very large, and many of them are countries. Australia is technically an island because it is unconnected to any other body of land, but it is more commonly considered a continental landmass. Of the seven continents, Australia is the smallest, at 2,969,976 square miles, or 7,692,202 square kilometers. However,...
American crocodile
     American crocodile (Crocodylus acutus)American crocodiles (Crocodylus acutus) basking in the sun in Costa Rica. Usually solitary, the reptiles bask for most of the day and then enter the water during the evening to hunt.(more)American crocodile, (Crocodylus acutus), moderately large species of crocodile inhabiting forests and freshwater environments, as well as brackish and marine intertidal environments, in Florida, Central America,...
Burmese python
  Burmese python, (Python bivittatus), species of constrictor snake that is native to various environments in southern and Southeast Asia, including several islands in Indonesia, and is known for its exceptional size and its environmental adaptability. Burmese pythons inhabit mangrove forests, rainforests, swamps, grasslands, rivers, and rocky areas, in a range extending from Nepal, Bangladesh, northeastern India, and Myanmar (Burma) eastward...
These 8 Buildings Will Make You See Norway in a New Light
      Norway, by some estimates, is two-thirds mountainous, and about half of its population lives in the south of the country, where its capital, Oslo, is located. These eight contemporary buildings will give you another lens through which to see this Scandinavian country.   Earlier versions of the descriptions of these buildings first appeared in 1001 Buildings You Must...
See the Variety of Russian Architecture in These 18 Buildings
  Russia is the world’s largest country by area, with great variety in its land and people. Its architectural heritage is equally varied, as these 18 buildings demonstrate.   Earlier versions of the descriptions of these buildings first appeared in 1001 Buildings You Must See Before You Die, edited by Mark Irving (2016). Writers’ names appear in parentheses.   All-Russia Exhibition CenterJoseph Stalin...
St. Louis: 10 Claims to Fame
     Sure, you’ve seen Meet Me in St. Louis and might even know all about Chuck Berry, Cardinals baseball, and St. Louis blues music. But the Gateway to the West is known for much more than that—much more, even, than we can cover in a short list. We can try, though! Here, in no particular order, are...