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.[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 is - closing out on maturity by receiving or paying cash.[2] Physical delivery, by contrast, means the investors physically takes possession of the underlying asset on maturity.


References

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