Settlement Price

What is a 'Settlement Price'

A settlement price, in derivatives markets, is the price used for determining profit or loss for the day, as well as margin requirements. The settlement price is the average price at which a contract trades, calculated at both the open and close of each trading day. Additionally, it is important because it determines whether a trader may be required to post additional margins. It is generally set by defined procedures that differ slightly among each exchange and the instrument traded.

BREAKING DOWN 'Settlement Price'

Typically, the settlement price is set by determining the weighted average price over a certain period of trading, typically shortly before the close of the market. For example, on the Chicago Mercantile Exchange, the settlement prices of certain equity futures are determined by a volume weighted average of pit trading activity in the 30 seconds between 3:14:30 p.m and 3:15:00 p.m. CDT.

RELATED TERMS
  1. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  2. Window Settlement

    A form of settlement between dealers whereby trades are settled ...
  3. Real Time Gross Settlement - RTGS

    The continuous settlement of payments on an individual order ...
  4. Rolling Settlement

    The process of settling security trades on successive dates so ...
  5. Settlement Period

    The period of time between the settlement date and the transaction ...
  6. Regular-Way Trade - RW

    A type of trade that is settled through the regular settlement ...
Related Articles
  1. ETFs & Mutual Funds

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  2. Markets

    The Foundation Of Structured Settlements

    This annuitized payment setup should be arranged through impartial attorneys and tax agents.
  3. Trading

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.
  4. Trading

    Profit From Unwanted Life Policies With Life Settlement

    With a life settlement you could cash in on your policy money now.
  5. Personal Finance

    A Guide To Debt Settlement

    Find out how you can negotiate your way to a lower debt load by paying up front.
  6. Investing

    The Truth About IRS Tax Settlement Firms

    These companies claim that they can reduce or even eliminate what you owe to the IRS. Find out the facts behind this alluring fiction.
  7. Investing

    How To Calculate Margin On The Series 3 Exam

    Learn what you need to know about margin to pass your Series 3 exam.
  8. Trading

    A Guide To Day Trading On Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  9. Trading

    Futures, Derivatives and Liquidity: More or Less Risky?

    Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk.
  10. Trading

    American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.
RELATED FAQS
  1. When is a share purchase marked as 'settled' by a brokerage?

    Understand the process of purchasing stock, including ordering, clearing and settlement, and learn when a stock trade is ... Read Answer >>
  2. How long will it take for me to receive the money that I profited from the stock ...

    What I'm trying to say is that if I place in an order into the market, and either profit or lose the money, how long ... Read Answer >>
  3. Which price of a stock do I end up purchasing?

    If I purchase a stock, it gives me the executed date and the stock sale price being X. Do I get the stock at that price X ... Read Answer >>
  4. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
  5. Can a special needs trust protect my settlement from collections?

    I am on SSI and expecting a settlement from a class action lawsuit. I have several accounts in collections. I'm thinking ... Read Answer >>
  6. Do I own a stock as of the trade date or the settlement date?

    When it comes to buying shares, there are two key dates involved in the transaction. The first date is the trade date, which ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center