Daily Settlement Process

The daily settlement process is a mechanism used in derivatives markets to ensure that the value of contracts is updated to reflect current market prices at the end of each trading day. This process involves the clearinghouse calculating the profit or loss for each participant based on the day's closing price.

If a trader has a profit, it is credited to their account; if they have a loss, it is debited. This continuous adjustment prevents the accumulation of excessive risk and ensures that all parties can meet their financial obligations.

It is a fundamental component of market stability, reducing the risk of counterparty default. In the context of digital assets, this mechanism is often integrated into perpetual swap contracts to maintain price alignment with the underlying spot market.