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Settlement

The official daily closing price used to mark futures accounts, and the process by which a contract is closed out at expiry.

Each day the exchange publishes a settlement price that determines mark-to-market gains and losses and margin requirements. At expiry a contract settles either in cash (index futures, based on a special opening quotation) or by physical delivery (oil, gold, grains).

Retail traders almost never take delivery; brokers force a roll or liquidation before first-notice-day.

Example: ES September expires on the third Friday. Positions still open are cash-settled against the index's special opening price that morning; no shares change hands.

Related: mark-to-market, first-notice-day, roll, contract-month

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