Settlement Price
The settlement price serves as the “closing value” for futures and many derivative products. Unlike a simple closing price—which may reflect the last trade of the day—the settlement price is carefully calculated by the exchange. It often uses a weighted average of trades or quotes during the final minutes of trading to create a stable, reliable number.
This price matters because it determines whether traders owe money or receive money when positions are marked to market. Margin requirements, gains, losses, and even liquidation risks depend on the settlement price—not the last trade or the mid-price. By standardizing this value, exchanges prevent price manipulation, reduce volatility at the close, and ensure fairness in the settlement process.
For contracts that physically or financially settle at expiration, the final settlement price decides the ultimate payout. Whether a trader is holding commodities, index futures, or crypto derivatives, the settlement price defines how much they gain or lose when the contract ends.
Why It Matters
The settlement price matters because it provides a fair, consistent benchmark for calculating profits, losses, and margin requirements. It protects market integrity by preventing last-minute price distortions.
How do exchanges calculate the daily settlement price?
Exchanges typically use a volume-weighted average price (VWAP) of trades or quotes during a designated closing window—often the last few minutes of the trading session. This reduces the impact of single large trades and ensures a stable, representative value. Each exchange publishes its own methodology.
Why is the settlement price different from the last traded price?
The last trade of the day can be volatile or unrepresentative. It may result from a small trade or a last-minute spike. The settlement price aims to smooth out these distortions by using broader market data, resulting in a more accurate benchmark for margining and valuation.
How does the settlement price affect futures traders at the end of the day?
All open futures positions are marked to market using the settlement price. If the settlement price moves against a trader, they may need to post additional margin. If it moves in their favor, they may receive funds. This daily adjustment keeps accounts in balance and reduces risk for both traders and exchanges.
Real-World Example
A trader holds a crude oil futures contract. At the end of the session, the exchange calculates a settlement price of $82.10 based on the final 2 minutes of trading. If the trader bought at $80, their position shows a gain of $2.10 per barrel, and the profit is credited to their account using this settlement price—not the final individual trade.
Settlement Price and FinFeedAPI
FinFeedAPI’s Stock API is the best match for settlement-price workflows. It provides accurate historical and intraday OHLCV data that developers use to model settlement calculations, backtest derivatives strategies, and build trading tools that rely on reliable end-of-day benchmarks.