Daily Settlement

Daily settlement is the process by which the profits and losses on open derivative positions are officially recognized and transferred between accounts at the end of each trading day. By settling accounts daily, the clearing house ensures that no party accumulates an unmanageable debt over time.

This process resets the cost basis of the position, effectively turning the unrealized profit or loss into a realized one for accounting purposes. Daily settlement is a cornerstone of risk management, as it keeps the system in balance and ensures that all participants have the necessary capital to continue their activities.

It reduces the duration of credit risk exposure and provides a clear audit trail for all transactions. It is a fundamental mechanism that ensures the financial health of the exchange.