Settlement: Cash vs Physical
What actually happens when a contract settles.
Settlement is the process that determines what happens when a futures contract reaches expiration. Some contracts are cash settled, meaning open positions are resolved by a cash adjustment. Others are physically settled, meaning delivery of the underlying product is possible if positions are held too long.
Equity index futures like ES and NQ are commonly cash settled. Commodity contracts may involve physical delivery rules, which is why active traders usually exit or roll well before the delivery period. Your broker may also have rules that force liquidation before certain dates.
Even if you day trade, settlement matters because expiration affects liquidity and pricing. Know the settlement type and key dates for every market you trade so you are never surprised by contract lifecycle rules.