Expiration Risk in Futures: Physical vs. Cash-Settled Contracts
Expiration risk is real. If you hold the wrong futures contract too long, you can get stuck dealing with physical delivery obligations you never intended to touch. Most beginners have no clue which contracts deliver real commodities and which simply cash-settle—and that ignorance can cost you.
Two Types of Futures Expiration
Every futures contract falls into one of two categories:
- Physical Delivery – You’re agreeing to deliver or receive the underlying commodity.
- Cash-Settled – No commodity changes hands; the exchange settles your P/L in cash.
If you don’t know which one you’re trading, you’re flying blind.
Physical Delivery Contracts: The Dangerous Ones
Physical delivery means the contract settles with actual goods. This includes:
- CL – Crude Oil
- GC – Gold
- SI – Silver
- ZB – 30-Year Bonds
- ZC – Corn
- ZL – Soybean Oil
Hold these too long and you enter the delivery window. You must either:
- offset your position before first notice day
- or be financially capable of taking delivery
No retail trader needs a truckload of crude showing up.
Cash-Settled Contracts: Safe for Holding Near Expiration
Cash-settled futures avoid delivery risk. Examples:
- ES / MES – S&P 500
- NQ / MNQ – Nasdaq
- RTY / M2K – Russell
- VX – Volatility Index
At expiration, the CME simply pays or charges the difference between your entry and the settlement price.
Why Delivery Risk Exists
Physical delivery ensures futures markets remain tied to real-world supply and demand. Without delivery, prices could detach from fundamentals.
But for traders, this creates hard deadlines. When the delivery window opens, you are either:
- assigned
- forced to deliver
- or closed out by your broker
Your broker will not let you enter the delivery process unless you have massive capital reserves.
Key Dates You Must Know
Every physical-delivery contract has two critical dates:
- First Notice Day – Delivery assignment can begin.
- Last Trading Day – After this, you cannot exit normally.
If you want the full lifecycle context, re-check Contract Expiration and Roll.
Example: CL (Crude Oil) Delivery Risk
CL is one of the most dangerous contracts for expiration risk:
- First notice day hits before most retail traders expect
- Liquidity shifts violently toward the next month
- Your broker will force liquidate your position
This is why every CL trader must roll early—long before expiration week.
Final Takeaway: Know Your Contract Type or Risk Disaster
Expiration risk isn’t complicated—you just need to know if your contract delivers a commodity or settles in cash. Trade cash-settled contracts freely near expiration. Treat physical-delivery contracts with respect, or the market will teach you the hard way.