How Futures Settlement Prices Differ from Closing Prices

Summary

The discussion distinguishes a futures contract’s closing price from its settlement price. The closing price is described as the final trade price during trading hours, while the settlement price is the official value used to mark positions to market. Because futures accounts are credited or debited for daily gains and losses, settlement prices affect account balances and help limit counterparty exposure.

Settlement procedures vary by contract and exchange. The example given for CME equity index futures uses a closing-range midpoint for certain lead-month contracts and a volume-weighted average of trades in a specified window for others; back months may be settled using traded or quoted spread relationships. The answer also says E-mini S&P and Nasdaq contracts derive settlement from their larger counterparts. These are contract-specific examples, not universal rules, and the referenced procedures document would be needed to confirm current details. The main practical lesson is to consult the applicable exchange methodology rather than assume settlement equals the last traded price.

Key ideas

• A futures closing price is generally the last traded price during the session, while settlement is the official mark-to-market value.
• Daily settlement credits or debits futures accounts for gains and losses.
• Settlement methods differ across contracts and can use a closing range, a VWAP window, or spread relationships.
• Exchange procedures should be checked for the specific contract because the examples are not universal.

Tags

# The difference between Close price and Settelment Price for future contracts


# The difference between Close price and Settelment Price for future contracts












What is the difference between Close price and Settlement Price for future contracts?

Is there a defined rule for evaluating the settlement price or different rules are applied for each instrument/exchange?

For example the CME Emini S&P500(ES) or ICE Russell 2000(TF).

## Answer by strimp099 (score 10)

https://quant.stackexchange.com/a/2308

Not really a quant question, but a quick search led to this from the CME: http://www.cmegroup.com/market-data/files/CME_Group_Settlement_Procedures.pdf. Unfortunately it depends on the contract, for example:

Equity Futures: For S&P and NASDAQ, the settlement price of the lead* month contract is the midpoint of the closing range determined based on pit trading activity between 15:14:30-15:15:00 Central Time (“CT”). For all other equity indices, the Volume Weighted Average Price (VWAP) of trades executed on Globex between 15:14:30-15:15:00 CT is used to determine the settlement prices for the lead month contracts. Back month contract months are settled to traded or quoted spread relationships. E-mini S&P and Nasdaq are settled to the value derived from the Big S&P and Nasdaq.

Basically, settlement price is important because futures accounts are marked to market every day. This means that gains and losses are offset and credited or debited to traders' accounts daily. This of course reduces risk of counterparty default. The closing price is usually considered the last price traded within trading hours and the settlement price is the official price of the contract used to mark traders' books to market.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.