Table of Contents

Understanding Settlement Price: Key Role in Trading & Profit Calculations

By

Adam Hayes

Updated November 12, 2025

Reviewed by

Somer Anderson

Fact checked by

Ariel Courage

Two derivative traders stand behind trading consoles and take trade orders on the phone while above them a series of clocks display the time in different time zones. — Momoimages / Getty Images

What Is a Settlement Price?

The settlement price is the price used for determining a position's daily profit or loss as well as the related margin requirements for the position. It is typically used in the mutual fund and derivatives markets. The settlement price may also refer to the final price an underlying asset achieves in options contracts to determine whether they are in-the-money (ITM) or out-of-the-money (OTM) at expiration and what their payoffs ought to be.

Calculation can vary across different markets and exchanges.

Key Takeaways

The settlement price determines daily profit or loss and margin requirements for derivative positions.
Settlement prices are calculated using various methods, often based on price averages over a specific period.
Different exchanges may use different procedures to determine settlement prices, leading to variations in market practices.
For options contracts, the settlement price helps establish whether they are in-the-money or out-of-the-money at expiration.

How Settlement Prices Are Determined in Trading

A settlement price serves as the reference to mark or evaluate the value of open derivatives contracts. This price is set on the settlement date and can be calculated in various ways, depending on the exchange and the instrument. It can be calculated in one of several ways and is generally set by defined procedures that differ slightly depending on the exchange and the instrument traded.

Settlement prices are typically based on price averages within a specific time. These prices may be calculated based on activity across an entire trading day—using the opening and closing prices as part of the calculation—or on activity that takes place during a specific window of time within a trading day. These prices can be based on an entire trading day's activity or a specific time window, incorporating opening and closing prices.

The opening price reflects the price for a particular security at the beginning of the trading day within a particular exchange while the closing price refers to the price of a particular security at the end of that same trading day. When securities trade on multiple markets, the closing price can differ from the next day's opening price due to off-hours activities.

Although opening and closing prices are handled similarly across exchanges, no standard exists for settlement prices, leading to global market differences.

Important

Settlement prices are often calculated as an average over a specified time, considering open and close prices, though formulas vary by market.

Variations in Settlement Price Calculations Across Markets

Typically, the settlement price is weighted average over a specified period, usually before market close. For instance, settlement prices are determined at the Chicago Mercantile Exchange (CME) during the range of these settlement periods:

CME: Settlement Times for Specific Assets
Asset	Settlement Time Range
Livestock	12:59:30 CT to 13:00:00 CT
Dairy	13:09:30 CT to 13:10:00 CT
Foreign Exchange	13:59:30 CT to 14:00:00 CT
Interest Rates	13:59:00 CT to 14:00:00 CT
Equities	14:59:30 CT to 15:00:00 CT
Gold	13:29:00 CT to 13:30:00 ET

On the Moscow Exchange (MOEX), settlement prices for the RTS Index and MICEX Index are based on activity between 3:00 p.m. and 4:00 p.m. of the last trading day. The Russian Volatility Index uses a different time, focusing instead on activity between 2:03:15 p.m. and 6:00:00 p.m.

Fast Fact

Settlement prices can also help compute daily net asset values (NAV) for mutual funds or exchange-traded funds (ETFs).

Settlement Price Example: Options Contract Scenario

If you own a call option with a strike price of $100 and the settlement price of the underlying asset at its expiration is $120, then the owner of the call can purchase shares for $100, which could then be sold for a $20 profit since it is in the money. If, however, the settlement price was $90, then the option would expire worthless since it is out of the money.

What Does Settlement Mean in Finance?

The term settlement refers to the point at which a financial transaction is complete. This means that payment is transferred from the buyer to the seller and the security or asset is delivered to the buyer. Payment cannot be cancelled in most cases once a transaction is settled.

What Is the Settlement Period for a Trade?

The settlement period for a trade depends entirely on the type of security or asset involved. This is the time it takes to complete a transaction from the initiation date to the time delivery must be made. For instance, trades settle for equities on a T+1 schedule. This means they settle one business day after the trade is initiated.

What's the Difference Between an Opening and Closing Price?

Opening and closing prices determine the price that assets trade at different times during the trading day. The opening price is the price at which a security trades when the stock market opens. The closing price, on the other hand, is the price at which it trades as soon as the closing bell rings and the market closes for the day. Both reflect the prices at the opening and closing of the regular trading day.

The Bottom Line

As an investor, there are several things you should understand about how trading works. One of these is how settlement prices work. Settlement prices are often calculated as an average across the trading day. These prices are commonly used as reference prices for assets and can help you determine whether you're in a position to realize a profit or a loss.

The calculation of settlement prices can vary by exchanges and the specific instruments traded, leading to differences in global markets. They can impact the net asset value (NAV) calculations for mutual funds and ETFs.

Article Sources

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CME Group. "Daily Settlement Time Details."
Moscow Exchange. "The Settlement Price Determined by the Contract Specifications."
U.S. Securities and Exchange Commission. "New 'T+1' Settlement Cycle – What Investors Need To Know: Investor Bulletin."

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