Physical delivery involves the actual transfer of commodities from sellers to buyers to fulfill futures contract obligations or spot market transactions. Physical delivery requires coordination of logistics, quality verification, documentation, and payment settlement. Most futures contracts allow physical delivery, though the majority are financially settled before expiration.

Physical delivery mechanisms ensure that futures prices converge with cash market prices at expiration, maintaining the integrity of price discovery. Delivery procedures vary by commodity and exchange, with specific requirements for location, quality, timing, and documentation. Understanding delivery processes helps assess contract specifications and arbitrage opportunities.

Real-world example: A crude oil futures contract approaching expiration requires physical delivery of 1,000 barrels at Cushing, Oklahoma, with specific quality standards and documentation requirements, prompting most financial traders to close positions before delivery obligations arise.