What price is used as the basis for contract liquidation?

When a futures contract is liquidated, the settlement price is typically based on the Mark-to-Market (MTM) Price, representing the current fair market value.

Oct 08, 2024 at 10:33 am

1. What Price is Used as the Basis for Contract Liquidation?

When a futures contract is liquidated, the price used as the basis for settlement is typically:

a. Mark-to-Market (MTM) Price: The current fair market value of the underlying asset, as determined by the exchange or a third-party pricing service.

2. Understanding Price Basis

The price basis for liquidation ensures that both parties to the contract receive a fair settlement. Here's how it works:

If the spot price is higher than the futures price at the time of liquidation, the short seller must pay the difference to the long seller. This compensates the long seller for missing out on the potential profit they could have realized by holding the contract until expiration.
If the spot price is lower than the futures price, the long seller must pay the difference to the short seller. This compensates the short seller for missing out on the potential loss they could have avoided by closing the contract at a higher price.

3. Exceptions to MTM Pricing

In some cases, the following exceptions may apply:

Index Futures: May use a volume-weighted average price (VWAP) over a specific timeframe.
Exchange-Traded Funds (ETFs): May use the closing price of the underlying ETF shares.
Commodity Futures: May use physical settlement based on the actual delivery of the underlying commodity.

4. Importance of Accurate Pricing

Accurate pricing is crucial to ensure fairness and avoid disputes during contract liquidation. Exchanges and regulators actively monitor and regulate pricing mechanisms to maintain market integrity and transparency.

Disclaimer:info@kdj.com

The information provided is not trading advice. kdj.com does not assume any responsibility for any investments made based on the information provided in this article. Cryptocurrencies are highly volatile and it is highly recommended that you invest with caution after thorough research！

If you believe that the content used on this website infringes your copyright, please contact us immediately (info@kdj.com) and we will delete it promptly.

Fear & Greed Index

Trade Now

Biggest Gainers

X

$0.0...08043

19.76%

Trade Now
ALCH

$0.0668

12.31%

Trade Now
CCD

$0.0046

9.94%

Trade Now
ZRO

$2.8706

9.13%

Trade Now
BROCCOLI

$0.0540

8.42%

Trade Now
DEVVE

$0.6298

8.28%

Trade Now

Latest Crypto News

North Korean Trade Officials Are Investing in Bitcoin (BTC)
2025-03-31 12:50:12
While Bitcoin Made a New All-Time High (ATH) Following Donald Trump’s Re-Election
2025-03-31 12:50:12
Ever-Evolving DeFi Sector Has Recently Seen a Notable Advancement in the NFT Space
2025-03-31 12:45:12
MARA Holdings Inc (MARA) is looking to sell up to $2 billion in stock to buy more Bitcoin
2025-03-31 12:45:12
Over-Leveraged Long Bet on Frog-Themed Cryptocurrency Pepe PEPE/USD Now Sits on Millions in Unrealized Losses
2025-03-31 12:40:12
Amidst the Bearish Market Sentiment, Cardano's (ADA) Price Prediction Has Become a Key Topic
2025-03-31 12:40:12

Related knowledge

how to find bitcoin contract address

Mar 22,2025 at 05:07pm

How to Find a Bitcoin Contract Address: A Deep DiveFinding a Bitcoin contract address requires understanding that Bitcoin itself doesn't inherently support smart contracts like Ethereum. The concept of a "contract address" is fundamentally tied to blockchain platforms with smart contract functionality. Therefore, searching for a Bitcoin contract address...

bitcoin smart contracts example

Mar 22,2025 at 05:35am

Bitcoin Smart Contracts: Example Use Cases and Technical LimitationsBitcoin, initially designed as a peer-to-peer electronic cash system, has limitations in supporting complex smart contracts like those found on Ethereum. While Bitcoin doesn't natively support Turing-complete smart contracts, several methods are being explored to enhance its functionali...

how to trade bitcoin futures in canada

Mar 25,2025 at 06:29pm

How to Trade Bitcoin Futures in CanadaTrading Bitcoin futures in Canada offers a unique set of opportunities and challenges for investors. This guide explores the process, regulatory landscape, and considerations for Canadian residents looking to participate in this market. It's crucial to understand the risks involved before engaging in any futures tra...

how to trade bitcoin futures on binance

Mar 26,2025 at 05:29am

How to Trade Bitcoin Futures on BinanceBinance offers a robust platform for trading Bitcoin futures contracts, allowing traders to speculate on the future price of Bitcoin without directly owning the underlying asset. This guide details the process, covering account setup, contract specifics, and risk management. Understanding these aspects is crucial b...

how to trade bitcoin futures in india

Mar 26,2025 at 02:14am

How to Trade Bitcoin Futures in IndiaTrading Bitcoin futures in India presents unique challenges and opportunities. While India doesn't have a regulated Bitcoin futures exchange domestically, Indian residents can still access international exchanges that offer these contracts. Understanding the legal landscape and the mechanics of futures trading is cru...

how to trade bitcoin futures in us

Mar 24,2025 at 07:49pm

How to Trade Bitcoin Futures in the USTrading Bitcoin futures in the US offers a unique approach to Bitcoin investment, allowing traders to speculate on the future price of Bitcoin without directly owning the underlying asset. This opens doors for sophisticated trading strategies but also introduces significant risk. Understanding the process and associ...