The official price set by the exchange at the end of a trading session, used to determine daily profits and losses for futures positions through the mark-to-market process.
Why It Matters
- 1The settlement price is used to calculate daily gains and losses, which directly affect account balance, margin requirements, and drawdown levels.
- 2It plays a key role in how futures accounts are updated each day.
Example
- 1A trader holds a futures contract overnight.
- 2At the end of the session, the exchange sets a settlement price higher than the previous day. The trader’s account is credited with the profit based on that price difference.
Common Mistakes
- ✖Assuming the last traded price is always the settlement price
- ✖Ignoring how settlement impacts overnight positions
- ✖Not understanding its role in daily profit and loss calculations
- ✖Confusing settlement price with real-time market price