Futures delivery basics: Cash vs. physical

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No one will dump commodities in your driveway.

© Faraways/stock.adobe.com, © BillionPhotos.com/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc

The 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.

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.

Futures contracts have two primary types of delivery mechanisms. Anyone considering futures trading needs to fully comprehend the difference.

The 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.

Futures contracts typically requiring physical delivery include:

FX 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.

For 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.

These futures contracts are typically settled financially:

For 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.)

By 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.

There are a few steps individual investors and traders can take to protect themselves from delivery risks:

Futures 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.