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In an illiquid (commodity) futures market, several days may pass between trades in a contract. If the traders' positions must be marked to market every day, a price must be quoted even on days without trades. Question: Is there a commonly accepted rule for how the price is set on days without trades? Or does the practice differ materially across contracts and/or exchanges?

(I am not asking for a list of possible methods but rather methods actually in use and their popularity. E.g. I am familiar with an exchange where the price is set by a person without following any written rule. I wonder how common this is, and if it is not, then what the common practice is.)

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There is a cascade of methods to choose a settlement price in futures markets - starting with trades in the relevant market, and going through trades in other expiries (plus spreads), quotes, quotes in spread markets, trades in related markets, previous day’s settlement prices etc.

This answer to a related question may be helpful - https://quant.stackexchange.com/a/59812/924

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  • $\begingroup$ The procedure for settlement of S&P emini futures on the CME is described here. cmegroup.com/content/dam/cmegroup/market-regulation/… It is complicated, but in essence the far away illiquid contracts are settled at the settlement price for the liquid nearby contracts plus an offset $\endgroup$ – noob2 Dec 21 '20 at 14:56
  • $\begingroup$ I am not asking for a list of possible methods but rather methods actually in use and their popularity. To that end, the linked answer is indeed helpful. A generalization to more markets would be even better. Thank you. $\endgroup$ – Richard Hardy Dec 21 '20 at 15:14
  • $\begingroup$ @noob2, thank you. $\endgroup$ – Richard Hardy Dec 21 '20 at 15:25
  • $\begingroup$ The exact methods in use vary by exchange and even by market within the exchange -- it would be impossible to list them all here (and it would be out of date quite quickly). Your best bet is to read the settlement procedure specifications for the markets that you care about. $\endgroup$ – Chris Taylor Dec 21 '20 at 15:26
  • $\begingroup$ Right, I could go ahead and check the different commodities on the different exchanges one by one. I was hoping I could avoid that, though. Would you say the practice differs materially across contracts, exchanges and over time, or do you see a general pattern (like the one in your linked answer) with only minor variations? (It helps if you add @RichardHardy when commenting, thank you.) $\endgroup$ – Richard Hardy Dec 21 '20 at 16:22

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