How Futures Settlement Works: Daily and Final Settlement Explained
If you trade futures, you need to understand how futures settlement works, because settlement prices decide your daily P&L, your margin usage, and what happens at expiration.
What “Settlement” Actually Means
Settlement is the official price the exchange uses to calculate gains, losses, and margin requirements. It is not always the last traded price. It is a price the exchange determines using a specific formula or auction process.
Settlement becomes the anchor for mark-to-market. Your account is updated against the settlement price—not your entry and not the intraday high or low.
Two Types of Futures Settlement
You deal with two forms of settlement whether you want to or not:
| Type of Settlement | When It Happens | Why It Matters |
|---|---|---|
| Daily Settlement | End of each trading session | Updates your P&L and margin balance |
| Final Settlement | On contract expiration | Decides the final value of the position if you hold to expiry |
Daily Settlement: The Exchange Checks Your Math
Every trading day, the exchange sets a settlement price. Your open positions are then compared to this number. You get credited if the price moved in your favor, debited if it moved against you.
Daily settlement affects:
- Your realized daily P&L
- Your margin balance
- Your chance of triggering a margin call
If your margin drops too low after settlement, your broker will tighten the screws. Understanding daily settlement keeps you from getting blindsided.
Final Settlement: What Happens at Expiration
Final settlement is the last settlement price of a contract. Once it settles, the contract is officially closed for anyone who held until expiration.
Two types of final settlement contracts:
- Financially settled contracts – ES, NQ, YM, 6E, 6J, 6B, etc.
- Physically delivered contracts – CL, NG, ZB, ZC, ZS, HE, LE, etc.
Most traders avoid physical delivery by rolling the contract before expiration. If you do not roll, expiration forces you into final settlement whether you like it or not.
How Final Settlement Is Calculated
The exchange uses a predetermined method—often a special opening or closing auction—to compute the final number. You cannot influence it. You cannot negotiate it. You just get whatever the exchange prints.
Typical settlement methods:
- Settlement auction at a set time
- Volume-weighted average price (VWAP)
- Calculated index value (for index futures)
- Special opening quotation (SOQ), common for equity index futures
Settlement and Contract Rolls
Because final settlement can be messy—especially with physical delivery—most traders roll forward to the next contract month. Rolling avoids expiration and keeps you in the game without dealing with delivery or settlement mechanics.
Why You Need to Care About Settlement
Settlement controls your actual P&L. Not your entry price. Not the intraday high. Not what the chart says at 2 PM. Understanding how futures settlement works keeps you from being surprised by daily balance swings or expiration mechanics.
The Bottom Line
Knowing how futures settlement works protects you from unexpected P&L moves, margin issues, and expiration headaches. Daily settlement drives your cash flow. Final settlement defines your outcome if you hold to the end. Take it seriously—because the exchange definitely does.