Settlement Price

AAA

DEFINITION of 'Settlement Price'

In derivatives markets, 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.

INVESTOPEDIA EXPLAINS '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. Cash Contract

    A financial arrangement that requires delivery of a particular ...
  2. Contract For Differences - CFD

    An arrangement made in a futures contract whereby differences ...
  3. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  4. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  5. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  6. Pairoff

    1. A purchase of securities to offset a previously transacted ...
Related Articles
  1.  if used properly, options can have less risk than an equivalent position in a stock
    Options & Futures

    Reducing Risk With Options

    If you want to use leverage to your advantage, you must know how many contracts to buy.
  2. Options & Futures

    Price Volatility Vs. Leverage

    Learn how to effectively gauge the risk of the markets you trade.
  3. Options & Futures

    The History Of Options Contracts

    Options and futures didn't originate with Wall Street power brokers. In fact, it all started with rice.
  4. Options & Futures

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  5. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  6. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  7. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  8. Investing on margin can be profitable but it's a risky play that needs care.
    Trading Strategies

    Margin Investing: Big Risk, Big Reward

    Investing on margin can be profitable but it's a risky play that needs care.
  9. Options & Futures

    What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a market experiencing divergence or convergence and how they affect trading strategies.
  10. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center