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How does cash settlement work?
A cash settlement is a settlement method used in certain futures and options contracts where, upon expiration or exercise, the seller of the financial instrument does not deliver the actual (physical) underlying asset but instead transfers the associated cash position.
What is cash settlement?
Settled Cash is the term given to the proceeds of the sale of an instrument / product on the platform that has gone through the 5 business (working) day settlement period and is available for withdrawal.
What is the difference between cash settlement and physical settlement?
Cash settlement is an arrangement under which the seller in a contract chooses to transfer the net cash position instead of delivering the underlying assets whereas physical settlement can be defined as a method, under which the seller opts to go for the actual delivery of an underlying asset and that too on a PRE-
What does physical settlement mean?
Under physical settlement, traders will have to compulsorily take delivery of shares on the expiry day against their derivative positions. Short sellers will now have to first borrow stocks under the SLB (securities lending and borrowing) mechanism, which allows borrowing of securities from institutional investors.
Which futures are cash settled?
Futures contracts that are physically delivered require the holder to either produce the commodity or take delivery from the exchange. Future contracts that are cash settled are not deliverable and a simple debit or credit is issued when the contract expires.
What is settlement process?
Settlement of securities is a business process whereby securities or interests in securities are delivered, usually against (in simultaneous exchange for) payment of money, to fulfill contractual obligations, such as those arising under securities trades.
How do cash settled options work?
A cash-settled option is a type of option for which actual physical delivery of the underlying asset or security is not required. The settlement results in a cash payment, instead of settling in stocks, bonds, commodities or any other asset. This type of option avoids the high costs of transport or transaction fees.
What options are cash settled?
Cash-settled options include digital options, binary options, cash-or-nothing options, and index options that settle to the cash value of an index.
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