Physical settlement versus cash settlement
Physical settlement delivers the commodity. Cash settlement pays the difference against a reference price. How each works, and how physical settlement supports cash-settled markets.
A commodity trade settles in one of two ways. Physical settlement transfers the commodity from seller to buyer. Cash settlement transfers only the difference between the trade price and a reference price, and no commodity changes hands. Each depends on different infrastructure.
| Physical settlement | Cash settlement | |
|---|---|---|
| What moves | The commodity, U₃O₈ | The net price difference |
| Requires | Custody and delivery | A trusted reference price |
| Typical use | Spot and physical trades | Futures and other derivatives |
How physical settlement works
In physical settlement, the seller delivers the commodity and the buyer pays for it. For uranium, delivery is a book transfer of physical U₃O₈ between accounts at a conversion facility. The material stays at the facility. Title moves.
Physical settlement is what producers, utilities, and other holders of material ultimately need. In the over-the-counter uranium market it has been slow. Each transaction is negotiated separately, including terms, timing, and the book transfer, and settlement takes weeks to months.
Physical settlement also carries delivery risk. Until the book transfer completes, the buyer depends on the seller's material being in place and the transfer being instructed correctly. Shorter settlement windows reduce the time either side is exposed.
How cash settlement works
In cash settlement, no commodity moves. The parties exchange the difference between the agreed price and a reference price on the settlement date. If the reference price settles above the agreed price, the seller pays the buyer the difference. If it settles below, the buyer pays the seller.
How physical settlement supports cash-settled markets
Cash-settled products settle against a reference price. In uranium, price reporting agencies publish the indicators the industry relies on, drawing on reported transactions, bids, and offers. Because most uranium still trades bilaterally and privately, the volume of publicly observable executed trades in the market is limited.
A venue that settles uranium physically adds a new source of executed, visible prices, from trades in receipts backed by physical U₃O₈. Over time, that executed price data can complement existing price reporting and support the development of cash-settled contracts. See the financialization gap in uranium markets.
Physical settlement on Uranium Digital
Uranium Digital provides on-platform physical settlement through digital warehouse receipts. Institutions issue physical U₃O₈ onto the platform as receipts and redeem receipts for physical delivery, from a single interface. Each receipt is backed 1:1 by U₃O₈ held at ConverDyn, an accredited U.S. conversion facility, and reserves are independently audited against receipts outstanding. Redemption settles by book transfer into the institution's account at the conversion facility. See physical settlement for how issuance and redemption work.
FAQ
Physical settlement transfers the commodity from seller to buyer. Cash settlement transfers only the net difference between the trade price and a reference price, and no commodity changes hands.
Cash settlement is a way of settling a contract by paying the difference between the agreed price and a reference price, instead of delivering the commodity. If the reference price is higher than the agreed price, the seller pays the buyer. If it is lower, the buyer pays the seller.
Uranium settles physically, by book transfer of U₃O₈ between accounts at a conversion facility. In the over-the-counter market, each transaction is negotiated separately.
Cash settlement references a published price on the settlement date, agreed by both parties in advance. In uranium, price reporting agencies publish the indicators used across the industry.