BAJAJ BROKING

Notification close image
No new Notification messages
card image
Crizac IPO is Open!
Apply for the Crizac IPO through UPI in just minutes.
delete image
card image
Start your SIP with just ₹100
Choose from 4,000+ Mutual Funds on Bajaj Broking
delete image
card image
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
delete image
card image
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
delete image
card image
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.
delete image

What is the Settlement Price? Meaning & Examples

The settlement price is a crucial indicator in financial markets, particularly when trading derivatives and commodities. In order to determine final settlement, daily profits or losses, and margin requirements, the official closing price of an asset or contract is utilised. Building a strong financial shield in the ever-changing financial landscape begins with understanding the important factors. To increase your financial awareness, this article will guide you through the main features of the settlement price. Let’s begin!

Understanding Settlement Price

The settlement price is the amount allocated to a financial instrument at the end of a trading session. Usually, the exchange calculates it by considering a weighted average over a given time period or the recent prices that have been traded.

This price is vital when choosing market positions for futures and options contracts. It affects margin calls, risk assessment, and the computation of profits or losses for traders who have open positions. The settlement price usually deviates from the last traded price (LTP) because it is a consensus based on market activity near the end of the session.

In Indian markets, stock exchanges such as the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) calculate this price using a defined formula. For equity derivatives, the daily settlement price is usually the closing price of the underlying index or stock. In commodities, it may be derived from the average of the last half-hour trades.

The neutrality of this metric is noteworthy because it ensures that daily margining is based on a fair market value and protects against manipulation or fluctuating values in a single trade.

Settlement Prices for Specific Markets

Here’s how settlement price functions across key market segments:

  • Equity Derivatives:

    • Calculated based on the closing price of the underlying asset.

    • Used to mark futures and options contracts to market daily.

  • Commodities:

    • Derived from the weighted average of trades during the last few minutes of the session.

    • Important for physical delivery contracts and daily profit and loss calculations.

  • Currency Derivatives:

    • Based on the Reserve Bank of India’s reference rate or the weighted average of closing prices.

    • Used in margining and settlement of contracts.

  • Index Options:

    • The final settlement price is often the closing value of the index.

    • Impacts the final payout of call option and put option contracts.

Each segment has its specific settlement methodology, defined by the respective exchange. Despite differences, the purpose remains the same — to ensure a fair calculation of daily obligations and a smooth contract closure.

Example of the Settlement Price

Suppose a trader owns a call option with a strike price of ₹ 1,000 on stock ABC. The stock closes at ₹1,050 on the day of expiry. The exchange has announced ₹1,048 as the settlement price. The payoff will be calculated based on this figure, not the last traded price.

In this case:
Call Option Intrinsic Value = ₹1,048 – ₹1,000 = ₹48

If the settlement price had been ₹995, the call option would have expired worthless, regardless of earlier price fluctuations.

This mechanism ensures consistency across clearing, preventing any last-minute anomalies from distorting actual gains or losses. Exchanges also audit and monitor trades to ensure transparency in the calculation of settlement prices.

Such examples illustrate how this metric impacts outcomes in derivative trading and why accurate computation is vital for market integrity.

Conclusion

The settlement price is more than simply a closing sum; it serves as a benchmark for determining monetary commitments in derivatives trading. It is necessary for calculating daily mark-to-market margins, adjusting open positions, and determining final payouts in both options and futures contracts. As this price is the result of a regulated process, market uniformity and transparency are guaranteed. It facilitates accurate position evaluation, collateral management, and dispute avoidance for traders. Participants can stay in line with financial market mechanisms and manage their trades precisely by knowing how settlement prices operate, particularly at the conclusion of each trading session.

Share this article: 

Frequently Asked Questions

No result found

search icon
investment-card-icon

MetaTrader 4 (MT4): Features, Benefits & How to Use It

Want to know how MetaTrader 4 can help in trading? See the top reasons why traders prefer MT4 and how it boosts speed, accuracy, and overall trading control.

investment-card-icon

Settlement Price in Trading

Get a clear idea of what settlement price means with real examples and market insights. Read how it's calculated and used in various financial segments today.

investment-card-icon

What is the Nifty CPSE Index

Get insights into the Nifty CPSE Index, its calculation method, stock performance drivers, benefits, risks, taxation aspects, and future outlook—all in one guide.

investment-card-icon

What is Maintenance Margin

Trading on margin? Maintenance margin is key to managing risk. Find out what it means and how it stands apart from regular margin accounts in this article.

investment-card-icon

How is Margin Penalty Calculated?

Want to avoid margin penalties in trading? Know what triggers them and how they're calculated. Stay compliant with exchange rules to save on fees.

investment-card-icon

What is the 5-3-1 trading strategy

Master the 5-3-1 forex trading strategy by narrowing your focus on 5 currency pairs, 3 proven strategies, and 1 trading session for better results every day.

investment-card-icon

What is a Trading Journal

A trading journal isn’t just notes—it’s your trading mirror. It keeps you accountable, reveals habits, and paves the way for consistent trading success.

investment-card-icon

What is a GTD Order

Know how GTD (Good Till Date) orders work in the stock market and how they help traders manage orders with ease. Get insights at Bajaj Broking.

investment-card-icon

Speculation in Trading

Curious about speculation in the stock market? This guide breaks down speculative trading, the mindset behind it, and how it impacts financial decisions.

investment-card-icon

Forex Leverage

Forex leverage lets traders control larger positions with less capital. Find out how it works, its benefits, risks, and the right strategies to manage it effectively.

Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

[ Read More ]

For more disclaimer, check here : https://www.bajajbroking.in/disclaimer

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

10 lakh+ Users

icon-with-text

4.4 App Rating

icon-with-text

4 Languages

icon-with-text

₹5100+ Cr MTF Book

icon-with-text
banner-icon

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|

Please Enter Mobile Number

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|