Difference between revisions of "Settlement"

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Settlement in derivatives markets takes place when a transaction is finalized between a [[buyer]] and a [[seller]] upon the contract's maturity at a price  determined after regular trading hours. It usually takes place at the official daily closing prices of a [[futures contract]].<ref>{{cite web|url=http://www.cme.com/glossary/S.html|name=Glossary of Terms|org=CME|date=March 1, 2008}}</ref> Settlement isn't common in derivatives markets, since most traders exit positions and most contracts are traded out before maturity.
  
Settlement takes place when a transaction is finalized between a [[buyer]] and a [[seller]]. The price of an underlying asset on the [[delivery]] date is called the settlement price. A [[futures]] contract price tends to converge towards the settlement price on the delivery date.
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[[Cash settlement]] is the most widespread form of settling derivatives contracts like [[futures]] and [[options]]. It involves closing out the position on [[maturity]] by receiving or paying cash. <ref>{{cite web|url=http://www.glossary.reuters.com/index.php/Reuters_Financial_Glossary:Community_Portal|name=Glossary|org=Reuters|date=March 1, 2008}}</ref> [[Physical delivery]], by contrast, means the investor physically takes possession of the underlying [[asset]] on maturity.  
  
 
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"Settlement" can also mean the settlement price, which is determined at the end of the regular trading hours; it is used to calculate gains and losses in futures market accounts, performance bond calls and invoice prices for deliveries.
 
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== References ==
 
== References ==
 
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[[Category:Trading Terms]]

Latest revision as of 14:41, 2 January 2014

Settlement in derivatives markets takes place when a transaction is finalized between a buyer and a seller upon the contract's maturity at a price determined after regular trading hours. It usually takes place at the official daily closing prices of a futures contract.[1] Settlement isn't common in derivatives markets, since most traders exit positions and most contracts are traded out before maturity.

Cash settlement is the most widespread form of settling derivatives contracts like futures and options. It involves closing out the position on maturity by receiving or paying cash. [2] Physical delivery, by contrast, means the investor physically takes possession of the underlying asset on maturity.

"Settlement" can also mean the settlement price, which is determined at the end of the regular trading hours; it is used to calculate gains and losses in futures market accounts, performance bond calls and invoice prices for deliveries.

References

  1. Glossary of Terms. CME.
  2. Glossary. Reuters.