zpostcode
Futures delivery basics: Cash vs. physical
Jun 30, 2026 1:15 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 >
Moscow theater hostage crisis of 2002
  Moscow theater hostage crisis of 2002, hostage taking by Chechen militants at the Dubrovka Theater in Moscow, Russia, that lasted from October 23 to October 26, 2002. It ended when Russian Spetsnaz (special forces) troops of the anti-terrorist Alfa command filled the theater with a gas. At least 150 people died, the vast majority of them as a result of...
Invasion of Poland
  Invasion of Poland, attack on Poland by Nazi Germany that marked the start of World War II. The invasion lasted from September 1 to October 5, 1939.   As dawn broke on September 1, 1939, German forces launched a surprise attack on Poland. The attack was sounded with the predawn shelling, by the German battleship Schleswig-Holstein, of Polish fortifications at the...
Siege of Calais
  Siege of Calais, siege during the Hundred Years’ War on the northern coast of France, lasting from September 4, 1346, to August 4, 1347. After his magnificent victory at the Battle of Crécy in August 1346, Edward III of England marched north and besieged Calais, the closest port to England and directly opposite Dover where the English Channel is narrowest....
Quit India Movement
  Quit India Movement, mass protest movement during 1942–43 against the colonial British raj’s political and military control of India. The movement, which took place against the backdrop of World War II, was initially planned by Mahatma Gandhi and his followers in the Indian National Congress (Congress Party) as a nonviolent action. However, attempts by the British authorities to prevent the...
Information Recommendation
plague of Justinian
  plague of Justinian, plague pandemic that spread throughout the Mediterranean region and beyond beginning about 541 CE. It is named for Justinian I, who was the Byzantine emperor at that time.   Although there is evidence that bubonic plague has been around for as long as humankind, the plague of Justinian is the first documented outbreak of a bubonic plague pandemic....
hyperinflation in the Weimar Republic
  hyperinflation in the Weimar Republic, economic disaster in the Weimar Republic in 1922–23 that impoverished millions of German citizens and paved the way for the rise of the Nazi Party.   During World War I, prices in Germany had doubled, but that was just the start of the country’s economic troubles. In 1914, Germany abandoned its gold-backed currency, certain that the...
Fall of Saigon
  Fall of Saigon, capture of Saigon, the capital of the Republic of South Vietnam, by North Vietnamese forces, which occurred from March 4 to April 30, 1975. It was the last major event of the Vietnam War and effectively signalled the bitterly contested unification of Vietnam.   The Paris Peace Accords of January 1973 had allowed the United States a face-saving...
Sack of Rome
  Sack of Rome, an attack on the city of Rome on May 6, 1527, by the forces of the Holy Roman Emperor and King of Spain, Charles V. Charles’s victory over the French at Pavia in 1525 had left his armies dominant in Italy. After ravaging the countryside, Charles’s forces stormed the city of Rome and embarked on an orgy...
Dos de Mayo Uprising
  Dos de Mayo Uprising, also called the Battle of Madridan engagement of the Peninsular War that occurred on May 2, 1808. The French commanders in Spain were highly experienced and successful soldiers, but they completely misjudged the inflammatory nature of Spanish political, religious, and social life. What they considered as a simple punishment for dissent and opposition to French control...
Great Swamp Fight
  Great Swamp Fight, critical battle of King Philip’s War, fought on December 19, 1675, in which the Native peoples of New England fought English settlers and their Mohegan and Pequot allies in what is believed to be the bloodiest conflict per capita in U.S. history. Sometimes called the “Great Swamp Massacre,” it took place in the area of West Kingstown,...
Indian Lok Sabha elections of 2024
     New Parliament House, New Delhi, May 24, 2023India's New Parliament House, inaugurated in May 2023, houses the Lok Sabha and the Rajya Sabha.(more)More than 968 million voters have registered ahead of India’s 2024 general election, for which voting will be held in seven phases between April 19 and June 1. This election will decide the majority party in the...
Siege of Antwerp
  Siege of Antwerp, German capture of the Belgian city of Antwerp from 28 September 28 to October 10, 1914, in the early months of World War I. The Siege of Antwerp showed the weakness of fortifications in the face of the latest German heavy artillery, but it also revealed the Belgians’ refusal to bow to German demands and their determination...