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SETTLEMENT OF FUTURES
1
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7
2

3 OPTIONS PRI…
4 SETTLEMENT O…

A futures contract is settled at any latter date after it is purchased by an investor. Thus the
settlement can be done on the expiry date or on before the expiry date of the contract.

On expiry

When the contract is settled on the expiry date a person purchases a contract and waits until
expiry to settle the contract, exchange calculates the difference in the share price on expiry and
credits or debits the profit/loss from the margin deposited with the exchange.

Before expiry

If a trader wants to exit the future contract before the expiry date of the contract he can do so.
Here the profit or loss will be settled by adjusting the margin which the trader has deposited with
the exchange while purchasing the futures contract. A trader can exit the contract before expiry by
selling the contract or by purchasing an opposite contract that nullifies the prevailing contract.

Margins on future contracts

From the explanation it is seen that margin is a very important concept in derivatives market.
Margin deposits are a differentiator in the cash & derivatives market. In future market a trader
could take the benefit of leverage and high risk to make profit by paying off the margin amount to
the exchange.

Daily Mark-to-Market Settlement

The position in the futures contracts for each member is marked-to-market to the daily settlement
price of the futures contracts at the end of each trading day. The profits/losses are computed as
the difference between the trade price or the previous day's settlement price, as the case may be,
and the current day's settlement price. The members who have suffered a loss are required to pay
the mark-to-market loss amount to exchange which is passed on to the members who have made
a profit. This is known as daily mark-to-market settlement. After daily settlement, all the open
positions are reset to the daily settlement price. The pay-in and pay-out of the mark-to-market
settlement is on T+1 days (T = Trade day).

Final Settlement

On the expiry of the futures contracts, Exchange marks all positions of brokers to the final
settlement price and the resulting profit / loss is settled in cash. The final settlement of the futures
contracts is similar to the daily settlement process except for the method of computation of final
settlement price. The final settlement profit / loss are computed as the difference between trade
Win a Badge! price or the previous day's settlement price, as the case may be, and the final settlement price of
the relevant futures contract. Final settlement loss/profit amount is debited/credited on T+1 day
FINISH ALL CHAPTERS AND (T= expiry day). Open positions in futures contracts cease to exist after their expiration day.
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1 FUTURES PRICI… Understanding Futures Rollover

18

Rollover involves carrying forward of futures positions from one series, which is nearing expiry
date, to the next one. On expiry, traders can either let a position lapse or enter into a similar
SETTLEMENT O…
7
2 contract expiring at a future date. Rollovers happen only in futures and not in options. Rollovers
take place typically in futures or forwards, which are classified as promise, while options are
classified as rights. Equity derivatives contracts in India are settled on the last Thursday of every
month (If Thursday is a holiday, the settlement happens a Wednesday). While rollovers are done
3 OPTIONS PRI… till the close of trading hours on that day, a chunk of the rollovers can begin a week before expiry.

4 SETTLEMENT O…
KEY TAKEAWAYS:
The Futures contract is settled on a daily basis and the Futures price is reset at the current day’s
closing price.
Trader can exit the Futures contract anytime by squaring off his position
The Pay-out for the trade takes T+1 days

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+ Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
+ Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
1
F+ Pay
UTURES Pmargin
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+ Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide notice no. 20200731-7 dated July 31, 2020 and 20200831-45 dated August 31, 2020
and other guidelines issued from time to time in this regard.

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