What is settlement price
Settlement price is the official closing price an exchange sets for a futures contract at the end of each trading day. The clearing house uses it to value every open position.
A futures contract is an agreement to buy or sell an asset at a set price on a later date. It is a type of derivative.
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Formal definition
In formal terms, the settlement price is the price the exchange or its central counterparty publishes for each contract month. It is used for:
- Mark-to-market. Each open position is revalued at the new settlement price.
- Variation margin. The change in value is paid in cash from losing positions to winning positions through the clearing house.
- Initial margin and risk limits. These are recalculated using the new price.
The settlement price is usually not the last traded price. Exchanges set their own method in the contract rules. Common methods are:
- A volume-weighted average of trades during a short closing window
- The result of a closing auction (see opening and closing auctions)
- A midpoint of the best bid and offer when trading is thin
- A calculated price for back months with no trades, often based on spreads to the front month
Worked example
This is a hypothetical case using letters instead of real prices.
A trader holds a long position in a futures contract.
| Item | Value |
|---|---|
| Yesterday's settlement price | P |
| Today's settlement price | Q (higher than P) |
| Contract size | S units |
The clearing house values the position at Q. The gain for the day is credited as variation margin:
Daily gain = (Q − P) × S
The trader on the short side of the same contract has that amount debited.
If Q had been lower than P, the long trader would pay instead. If the account falls below the maintenance margin, the broker asks for more collateral. Leveraged futures and CFD positions can lose money fast, and daily settlement makes those losses real in cash each day. See risk management.
Edge cases experienced traders should know
- Daily vs final settlement. The daily settlement price is used for margin. The final settlement price on the expiry date closes the contract. For cash-settled contracts it is often tied to an index value or a special opening quotation. See cash vs physical settlement.
- Limit days. If a contract hits its daily price limit, the settlement price may be set at the limit even though few trades happened there.
- Illiquid months. Back-month settlements can be partly model-based, so they may not match any trade.
- Settle vs close on charts. Many charts show the last trade as the "close". This can differ from the official settle, so daily bars from different data sources may not match.
- Curve shape. Comparing settlement prices across contract months shows contango or backwardation. This matters for a futures roll.
Where the term appears
- Exchange daily bulletins and clearing reports, often next to volume and open interest
- Broker statements for futures accounts, listed as the price used to value positions
- News lines such as "crude oil settled at" or "gold futures settled higher"
- Contract specifications, which describe the settlement method and timing
Related terms
Frequent questions
What is the settlement price meaning in simple words?
It is the official end-of-day price of a futures contract. The exchange uses it to value open positions and to work out daily gains and losses.
Is the futures settlement price the same as the closing price?
Not always. The closing price is often the last trade. The settlement price follows the exchange's own method, such as an average over a closing window.
Who sets the settlement price?
The exchange or its clearing house, using the method in the contract rules.
Why does my chart show a different close?
Many charts use the last traded price, not the official settle. Check the exchange data for the settlement figure.
Does a settlement price apply to CFDs?
CFDs are not exchange-cleared, so they have no settlement price of their own. A provider may still use futures prices when it prices or rolls a CFD on a futures contract.