Settlement price of an option. What Is the Difference in Settlement and Closing Price? | Finance - Zacks

The Last column is the price of the last trade on the day. The Settle column shows the settlement price for each day. The settlement price is the price that is set by each settlement or pit committee in order to reflect with more accuracy the contract price at the end of the trading session.

In liquid markets, when trading is active there is a slight difference between the last trade price and the settlement price as trades are continuous with little fluctuations in prices.

On the other hand, in illiquid markets, the last trade could occur two or three hours before the market closes, and important events that affect the contract future price might arise between the last trade time and the market closing time.

In this situation the settlement committee guard for the price that reflect the current market conditions for that asset.

The exact procedure for determining the settlement price will depend on the contract as well as on the exchange. However, it will generally be close to the Last price.

This of course reduces risk of counterparty default. To summarize, we can say that the settlement price is used for futures and other derivatives and is generally calculated as the average price over a certain period of time.