EDSP stands for exchange delivery settlement price. It is the official price an exchange sets to settle an expiring contract, most commonly futures and options. Think of it as the final number used to calculate who pays what at expiry.
EDSP is not simply the last traded price or the screen’s end-of-day quote. Each contract has a defined method for producing this final settlement, and the exchange publishes it after running the relevant calculation or auction.
Where you meet EDSP in real trading
EDSP shows up across listed derivatives. You will most often encounter it in these situations:
- Futures expiry: The EDSP sets the final cash flow for cash-settled futures, or the invoice price for physically delivered futures.
- Index products: For equity index futures and options, the EDSP often comes from a defined opening or closing process in the underlying index’s constituents.
- Options exercise and assignment: Whether an option is in the money at expiry is usually judged against an EDSP or a price derived from it. This decides automatic exercise and assignment.
- Hedging and roll decisions: Traders compare the approaching EDSP with prevailing prices when deciding whether to hold to expiry or roll to a later month.
How an exchange typically calculates EDSP
The exact method varies by exchange and by contract, and it is set out in the contract specification. Common approaches include:
- Auction price: Running a dedicated settlement auction in the underlying market at a set time, then using the uncrossing price as EDSP.
- Volume-weighted average price (VWAP): Averaging traded prices over a pre-defined window, weighted by trade size, for example the last few minutes before the cut-off.
- Special opening or closing level: For equity indices, using a level based on the opening or closing prices of all constituents on the expiry day.
- Reference fixing: For rates, FX or commodities, using a published fixing or an average of quotes from multiple sources taken in a set window.
Why the ceremony? A defined procedure is harder to game than just taking the last trade. Using auctions, windows and publication rules helps produce a representative price when liquidity concentrates or when single prints could be unrepresentative.
EDSP versus daily settlement and closing price
These terms are often mixed up, but they serve different jobs:
- EDSP: The final settlement reference for an expiring contract. It triggers cash settlement, delivery invoicing, and option exercise checks.
- Daily settlement price: The mark used for day-to-day variation margin during the life of a futures contract. It is set every session, not just on expiry, and keeps margining current.
- Closing price: The official end-of-session price for a market. Useful for charts and performance, but not necessarily the number used to settle an expiry.
An expiring future will be marked to the daily settlement price up to the day before expiry. On the expiry day, the EDSP takes over as the definitive value for settling that contract month.
What EDSP affects in your positions
- Final profit and loss on futures: Your P&L crystallises at EDSP if you hold to expiry. For cash-settled contracts, the exchange will debit or credit the difference between your entry and the EDSP, adjusted for contract size.
- Delivery terms: For physically delivered futures, the invoice or delivery price is anchored to the EDSP, which affects what the long pays and the short receives.
- Options moneyness at expiry: Calls are in the money if EDSP is above the strike, puts if it is below. Exchanges often run automatic exercise if intrinsic value is positive by at least a minimum amount, and some brokers set their own cut-offs and instruction deadlines.
- Index cash settlement: Index futures and options typically settle to an EDSP based on a tightly specified index level. This avoids forcing delivery of constituent shares.
Worked examples
1) Index future: You are long one index future with a £10 multiplier. Your entry was 6,980. You hold to expiry. The exchange calculates an EDSP of 7,020 from the index’s official opening procedure on the expiry morning. Your final cash flow is (7,020 − 6,980) × £10 = £400 credited. If the EDSP had come out at 6,950, you would owe £300 instead.
2) Single-stock call option: You own a call with a strike of 250p on ABC plc. The exchange’s method for equity options uses a VWAP of the underlying share over a five-minute settlement window. The EDSP prints at 251.2p. Your option is 1.2p in the money, so it is eligible for automatic exercise if it meets the exchange’s and your broker’s thresholds. If exercised, you buy at 250p and either take shares or receive cash settlement depending on the contract’s terms.
Important nuances and common pitfalls
- Contract-specific rules: EDSP procedures are set per contract. Two index futures on different venues can use different windows or auctions, and equity options may use different averaging periods. Always check the contract specification.
- Not the last trade: The EDSP can differ from the last visible print. If you are targeting a specific exit level on expiry day, remember the settlement window or auction can move the final number.
- Time zones and calendars: Expiry times and the relevant auction or window follow the venue’s calendar. Public holidays, half days or uncrossing delays can shift timings and procedures.
- Rounding and tick sizes: Some contracts round the EDSP to the nearest tick, others keep more decimals for calculation then round cash flows. Small differences can matter on large positions.
- Automatic exercise instructions: Exchanges and clearing houses have default exercise rules. Brokers may impose earlier cut-offs for client instructions or higher thresholds for small in-the-money amounts. Processes vary by provider.
- Cash versus physical settlement: EDSP drives different outcomes. Cash-settled contracts produce a payment only. Physically delivered contracts convert into delivery obligations based on the EDSP-linked invoice price.
How to work with EDSP when managing trades
- Read the expiry and EDSP section of the contract spec before you trade the product, not on the last day.
- Plan rolls in advance if you do not want to be bound by the EDSP. Rolling reduces the chance of being caught by an unfavourable auction or settlement window.
- On expiry day, track the relevant auction or window rather than just the live market. That is what your settlement will reference.
- For options, confirm your broker’s cut-off times for exercise instructions and whether they support contrary exercise when near the money.
In short, EDSP is the exchange’s definitive price for settling an expiring contract. Know how it is made for the product you trade, because that single number decides the final outcome of the position you carry into expiry.