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CFDs are complex instruments. 75% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. 75% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
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Exchanges will use the EDSP to calculate the difference between a derivative’s traded price and its price at the time of expiry. The difference between these two figures shows the extent to which an open position is in-the-money, or out-of-the-money.
If the exchange delivery settlement price is above the contract’s price at expiry, the buyer is in-the-money and the seller is out-of-the-money. If the EDSP is below the contract’s price at expiry, the opposite is true: the seller will be in-the-money and the buyer will be out-of-the-money.
Examples of EDSP
The exchange delivery settlement price is calculated in different ways depending on the exchange.
For example, the London Stock Exchange (LSE) attains the EDSP of the FTSE 100 through an intraday auction, which is held on the third Friday of every month. The auction call starts at 10.10am (UK time) for each security.
The auction’s main purpose is to concentrate liquidity in the respective securities and create a price for the LSE derivative market’s expiring futures and options contracts.
Instead of holding an auction, other exchanges calculate EDSP by taking the average of a derivative’s traded price over a set period of time.
For instance, the Chicago Mercantile Exchange (CME) calculates the EDSP of EUR/USD futures by taking the exchange rates from 16 leading banks. It then discards the top and bottom three sets of figures, and calculates the average from the remainder of the exchange rates, which becomes the EDSP.
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