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What happens if you hold a Futures contract until expiration?​

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If a trader holds a futures contract until expiration, one of two things will happen:

Cash Settlement – The contract is settled based on the final price, and the trader receives (or pays) the difference in cash. 
Physical Delivery – The contract holder must accept or deliver the actual commodity. 

Each futures contract has specific settlement rules set by the exchange, so traders need to know what happens when a contract expires.

Cash-Settled Futures Contracts

What Happens?
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• No physical asset is exchanged.
• The final settlement price (set by the exchange) determines profit or loss.
• Any gains or losses are automatically credited or debited to the trader's account.

Common Cash-Settled Futures:

Stock Index Futures (S&P 500, Nasdaq)
Interest Rate Futures (Treasury Bonds, LIBOR)
Volatility Futures (VIX)
Bitcoin Futures

Example: S&P 500 (ES) Futures Expiration

• Trader buys 1 ES contract at 4,500.
• On expiration, the final settlement price is 4,600.
• The trader profits 100 points (4,600 - 4,500).
• Since each ES point = $50, the trader receives $5,000 in cash.

No need to close the position manually—cash settlement happens automatically!

Physically Delivered Futures Contracts

What Happens?

• The trader must either accept delivery (buyer) or make delivery (seller) of the underlying commodity.
• If the trader doesn’t want delivery, they must exit the position before the First Notice Day (FND) or Last Trading Day (LTD).
• Brokers may force liquidation if a trader doesn’t have the ability to take delivery.

Common Physical Delivery Futures:

Crude Oil (CL) → 1,000 barrels per contract
Gold (GC) → 100 troy ounces per contract
Corn (ZC) → 5,000 bushels per contract
Live Cattle (LE) → 40,000 pounds of cattle per contract

Example: Crude Oil (CL) Futures Expiration

• Trader holds 1 crude oil contract past expiration.
• Each contract = 1,000 barrels of oil.
• The exchange assigns a delivery location (e.g., Cushing, Oklahoma).
• The trader must accept delivery or find a buyer immediately.

Most retail traders avoid this by closing the position before expiration!

What If You Forget to Exit a Futures Position?

Cash-Settled Contracts:

Your account is automatically credited or debited based on final settlement price.
You might be stuck with a loss if the price moves against you.

Physically Delivered Contracts:

Your broker may force liquidation before expiration to prevent delivery.
If the broker does not liquidate, you could be responsible for storing and transporting the asset (which can be expensive).

Notorious Example: Crude Oil (April 2020)

• Oil traders held contracts too close to expiration without the ability to take delivery.
• Oil prices crashed to -$37 per barrel as traders desperately sold at negative prices to avoid delivery.

Lesson: Always check expiration dates and roll over or close positions in time!

How to Avoid Expiration Issues

Roll Over the Contract – Close the expiring contract and open a new one for a later month.
Close the Position Before Expiry – Avoid unwanted settlement by exiting early.
Know the Contract Rules – Each futures market has different expiration and delivery terms.
Watch Broker Notifications – Brokers send alerts before expiration.

Key Takeaways

If a futures contract is cash-settled, you receive or pay the difference in cash.
If a futures contract requires physical delivery, you may have to accept or deliver the asset.
Most retail traders exit or roll over contracts before expiration to avoid settlement issues.
Brokers may force liquidation if you don’t have enough funds or storage capacity for physical delivery.

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