Commodity contracts settle in one of two ways: cash settlement, where the final profit or loss is simply paid in money, or compulsory physical delivery, where the seller delivers the actual commodity and the buyer pays for it in full. Which one applies is fixed in each contract's specification — and it decides how carefully you must watch the calendar. This cash-versus-delivery framework applies across India's commodity derivatives segments; the per-commodity examples below are from MCX, and contracts on NSE's commodity derivatives segment (NSE Commodities) carry their own settlement terms in their specifications — always check the exact contract you trade.
What is cash settlement?
In a cash-settled contract, no goods ever change hands. On expiry, the exchange takes a reference price (for some MCX contracts this is derived from an international benchmark) and settles the difference in rupees. If Sunita is long a cash-settled energy contract and the final settlement price is above her entry, the difference lands in her account; if below, it is debited. Clean and simple — the position just becomes money.
What is compulsory delivery?
Many MCX contracts — bullion and base metals among them — are compulsory delivery contracts. Held to the end, they don't settle in money: the short side must deliver exchange-certified goods to an accredited warehouse or vault, and the long side must pay the full contract value and take ownership.
That is a different universe of obligations from margin trading: full payment running into lakhs, quality certification, warehouse and vault procedures, applicable taxes. Delivery machinery exists for jewellers, refiners and industrial users — not for a retail trader who only wanted price exposure.
What is the staggered delivery period?
Delivery-type contracts don't flip from "normal trading" to "delivery" in one instant. In the final stretch of a contract's life — commonly its last few trading days — it enters a staggered delivery period. During this window, sellers holding open positions can submit their intention to deliver on any day, and the exchange assigns those deliveries to buyers holding open positions. Anyone still open in this window is signalling willingness to give or take delivery.
Exchanges reinforce the message with money: margins on delivery-type contracts are raised sharply as this period approaches, so staying in becomes expensive even before delivery obligations bite. See what margins apply in commodity trading.
So what should a retail trader actually do?
Square off before the delivery machinery starts. The timeline looks like this:
| Stage | What it means for you |
|---|---|
| Normal trading | Trade freely; watch the expiry date from day one |
| Days before staggered delivery begins | Your practical exit deadline: square off or roll over |
| Staggered delivery period | Open positions can be assigned delivery; margins already elevated |
| Expiry | Remaining positions settle — cash, or full delivery obligations |
The mechanics of squaring off and rolling over are covered in how do commodity futures work. Note that brokers often set their own internal cut-offs ahead of the exchange's schedule and may square off client positions in delivery-type contracts before the delivery period — check your broker's policy rather than planning to exit at the last minute.
Equity derivatives went through a similar shift to physical settlement — if you trade stock F&O, what is physical settlement in stock F&O tells that side of the story.
Things to keep in mind
- Check the settlement type before you enter a contract — cash or compulsory delivery is printed in its specification, not negotiable later.
- Mark two dates for delivery-type contracts: expiry, and the start of the staggered delivery period. Your real deadline is the second one.
- Margins climb steeply near delivery; even traders with no delivery risk feel the cash squeeze.
- If you genuinely want physical gold or silver, exchange delivery is possible but paperwork-heavy and capital-heavy — most retail investors are better served understanding it than using it.
Read next
What are commodity options? — Futures are one instrument. Options on them behave differently — and can expire into a futures position.