What Is a Settlement Price? | How Do Futures Work?

The settlement price is the official price an exchange assigns to each futures contract at the end of every trading day. It is the price used to mark every open position to market, calculate margin, and move cash between accounts. It is often different from the last traded price.

Two kinds of settlement price

Daily settlement price: set every trading day. It determines your daily gain or loss and whether you face a margin call.
Final settlement price: set when the contract expires. For cash-settled contracts it determines the last cash payment. For physically delivered contracts it sets the price at which delivery is invoiced.

How the daily price is set

Each exchange publishes a settlement procedure for each contract. Typical methods include:

a volume-weighted average of trades during a short closing window,
using bids and offers when there are few trades,
deriving deferred months from spread trades relative to the front month.

The aim is a fair, hard-to-manipulate price, which is why it can differ from the last trade of the session. Futures trade nearly around the clock, but the daily settlement is calculated at a set time, usually near the close of the main daytime session.

How the final price is set

This depends on the contract. Some examples from exchange rules:

Montreal Exchange S&P/TSX 60 futures (SXF) are cash-settled to the official opening level of the index on the final settlement day, the third Friday of the contract month.
CME E-mini S&P 500 futures are cash-settled to a special opening quotation of the S&P 500 index on their final settlement day.
Physically delivered contracts such as crude oil or corn settle into delivery at the final settlement price, explained in physical vs cash settlement.

A tiny example

Prices are illustrative. You hold one E-mini S&P 500 contract ($50 × index). Yesterday’s settlement was 6,000.00. Today the last trade is 6,012.50, but the exchange’s settlement procedure produces 6,010.00.

Your account is credited based on the settlement, not the last trade:

(6,010.00 - 6,000.00) × $50 = $500

Tomorrow’s gain or loss will be measured from 6,010.00. This daily reset is mark-to-market.

Why it matters

It decides margin calls. Your account equity at settlement is what the broker checks before issuing a margin call.
It is the tax snapshot in the US. Regulated futures held at year end are valued for tax at fair market value on the last business day, in practice the settlement price.
It is published data. Exchanges publish settlement prices daily, which makes them the standard reference for valuing positions.
Final settlement ends the contract. Positions still open at expiry are closed at the final settlement price or move to delivery.