Cash Settlement

Cash settlement means a contract is closed by paying the difference in value in money, rather than by delivering the underlying asset. CFDs and spread bets are cash-settled by definition: a gold contract never results in metal arriving, and an index contract never delivers shares — only the profit or loss is credited or debited to the account. The alternative is physical delivery, used in some commodity futures and in genuine spot currency transactions between institutions. For retail traders, cash settlement is what makes it practical to trade barrels of oil or an equity index in small sizes, but it also means the position is a financial exposure rather than ownership of anything.