A Look-Alike Contract is an OTC derivatives contract that is cash-settled that has otherwise similar specifications to a physically settled futures contract. It is used to speculate on the price movements of the underlying asset, without having to take delivery of it.The key difference between a look-alike and a physically settled futures contract is that, in the case of the latter, you will have to take delivery of the underlying asset if you are holding it at expiration. With a look-alike, you simply receive or pay out cash based on the price movement of the underlying asset during the life of the contract.While this may seem like a small distinction, it can actually be quite important when trying to hedge your exposure to certain assets.For example, if you are long oil but do not want to take physical delivery due to storage costs, you could use a look-alike contract instead.
