What is the Physical Settlement of Futures & Options Contracts?
March 27, 2026 | 8 mins read
Futures and options (F&O) contracts are derivatives that derive their value from underlying assets such as stocks, commodities, or indices. Traditionally, many F&O contracts were settled in cash, meaning traders received or paid the difference in price instead of taking possession of the asset. However, in recent years, regulatory bodies like SEBI (Securities and Exchange Board of India) have mandated physical settlement of stock derivatives to curb excessive speculation and improve market stability.
In this article, we will explore physical settlement of F&O contracts, its working mechanism, margin requirements, advantages, and disadvantages, along with key differences from cash settlement.
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