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Lots of people trade physically settled commodities futures contracts without handling the underlying products. You just have to make sure you close or roll you
by minimax 9y ago
Lots of people trade physically settled commodities futures contracts without handling the underlying products. You just have to make sure you close or roll your position before it settles.
- vasilipupkin 9y agoOf course, but you could get stuck in a position. What's the point when cash settling accomplishes the same thing ?
- jnordwick 9y agoPhysically settled allows the future to better match the price of the underlying since you can take or give delivery in it.
- vasilipupkin 9y agoThat's not correct. They still have to pick a settlement price. Physically settled futures makes sense when customers are interested in the commodity itself and cash settled makes more sense for pure speculation.
- jnordwick 9y agoThere are many products that are settled both ways, and some financial futures that are physically settled.
- vasilipupkin 9y agoSure. But physically settled funancial futures such as bond futures are physical because customers actually want to get delivery of the underlying bonds. In the case of bitcoin futures, most likely they don't. Physically settled futures cost the exchange more in terms of additional expenses / infrastructure. So the exchange will go with physical only when there is a clear customer demand for that.
- jnordwick 9y agoYou're going off track. I'm just saying that phys settled allows the future to track the underlying better because you can take delivery. This is a completely seperate issue on if you actually want to hold the underlying (many people would prob love the idea of using cme to deal in btc directly since current exchanges are so terrible at it).
- vasilipupkin 9y agowhy does it track better just because you take delivery? either way, whether you take delivery or not, the exchange has to decide on a settlement mark to market price. So, delivery or not, it will track the same.
- jnordwick 9y agoBecause you can take delivery and sell on spot market either now or in the future (with carry costs) or buy on the spot now, carry, and sell into the future. This keeps the prices linked.