Now let's explore the settlement processes for derivatives using our WTI Oil Forward contract example for context. In the world of derivatives, there are primarily two settlement methods, physical settlement, and cash settlement. With physical settlement, the transaction culminates in the actual exchange of the underlying asset. The buyer fulfills their part of the contract by paying the agreed upon price. While the seller is responsible for physically delivering the underlying asset, consider our initial scenario where oil is trading at a spot price of 80 at the time of settlement. Under physical settlement, the trader pays the forward price at $76.50 for each barrel amounting to a total of $765,000. And in return, they received the 10,000 barrels of oil from the contract. You might recall that we previously calculated a positive value of $35,000 for this contract. Does this value just disappear when the contract is settled? Not quite. If the trader decided to sell these barrels immediately in the spot market at the market price of $80 each, ignoring any transaction costs for simplicity's sake, they would receive $800,000. These two transactions together, the settlement of the forward and the sale on the open market would realize a profit of $35,000 from having been able to buy the oil under the terms of the forward contract for $76.50 when it was worth 80 on the open market. Now, let's talk about cash settlement. In this arrangement, instead of physical delivery, the contract's value is settled monetarily. The payment is the net difference between the contract price and the market price of the underlying asset at settlement. In our example, the trader would gain the same $35,000 as a cash settlement reflecting the $3.50 per barrel advantage over the spot price, multiplied by the 10,000 barrels in the contract. Cash settlement sidesteps, the need for physical delivery, making it a preferred method for assets that are cumbersome or even impossible to deliver, such as indices or certain types of commodities.