The exchange's end-of-session process of marking every open futures position to an official price and moving cash between accounts.
At the close the clearing house publishes a settlement-price for every contract month, revalues all positions, and debits or credits variation-margin in cash the same evening. Yesterday's profit is real money in your account, not an unrealised number.
This is why futures never accumulate large unsecured exposures the way bilateral contracts do: each day's loss is collected before the next day starts.
Example: you are long two gc contracts from $2,400. Settlement prints $2,388. That is 120 ticks x $10 x 2 = $2,400 debited overnight, and your cost basis for tomorrow's mark becomes $2,388.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Educational only, not advice. Spotted an error? Post in Site Feedback.