How does Coinbase's contract settlement work?

What Is Contract Settlement on Coinbase?

Contract settlement on Coinbase refers to the process where a futures or perpetual contract position is closed, and the resulting profit or loss is calculated and credited or debited from a user’s margin balance. This mechanism is essential for traders engaging in derivatives markets on Coinbase’s advanced trading platforms, such as Coinbase Advanced Trade. Unlike spot trading, where assets are exchanged immediately, contract settlement involves time-bound agreements based on price movements of the underlying asset—like Bitcoin or Ethereum—over a specified period.

When a contract reaches its expiration or when a trader manually closes a position, the system executes the settlement logic automatically. This ensures that both parties involved—the long (buyer) and short (seller)—receive their due settlements without manual intervention. Settlement can happen in two ways: cash-settled or physically delivered, depending on the contract type. Coinbase primarily uses cash-settled contracts, meaning no actual cryptocurrency changes hands—only the monetary difference is transferred.

How Does Cash Settlement Work?

Cash settlement is the default mechanism for most futures contracts on Coinbase. Instead of delivering the actual crypto asset, the platform calculates the difference between the entry price and the exit (or settlement) price in USD or another stablecoin like USDC.

• The trader’s realized P&L (Profit and Loss) is computed using the formula:P&L = (Exit Price - Entry Price) × Position Size
• If the result is positive, the trader earns a profit, which is added to their margin balance.
• If negative, the loss is deducted from the same balance.
• All calculations happen in real-time upon position closure or at contract expiry.

This process avoids the need for users to hold or transfer actual crypto assets at settlement. It also reduces friction for retail traders who may not want custody responsibilities for the underlying asset post-trade.

Step-by-Step: Closing a Futures Position

To manually settle a contract on Coinbase Advanced Trade, follow these steps:

• Navigate to the 'Futures' tab in your Coinbase Advanced Trade interface.
• Locate the open position you wish to close under the “Open Positions” section.
• Click the “Close” button next to the position—this triggers a market or limit order depending on your preference.
• Confirm the order details, including the expected P&L shown in real-time.
• Once the order fills, the position is closed, and the settlement is processed instantly.
• Check your margin balance in the “Portfolio” section to see the updated equity reflecting the settlement.

This procedure applies whether you're long or short. The system ensures that your margin account reflects gains or losses immediately after execution, enabling seamless reinvestment or withdrawal of funds.

Automatic Settlement at Expiry

For time-bound futures contracts (e.g., quarterly BTC-USD futures), Coinbase automatically settles positions at the contract’s expiration. No action is required from the user.

• Before expiry, Coinbase publishes the final settlement price, usually derived from a volume-weighted average price (VWAP) over a specific window (e.g., the last hour of trading).
• At the exact expiry time, all open positions are closed using this final price.
• The system then calculates each user’s P&L based on this official price and updates their margin balance accordingly.
• Any remaining margin, including profits, becomes available for new trades or withdrawal.

This automated process prevents slippage and ensures fairness by using a transparent, pre-defined pricing mechanism. Traders can view the upcoming expiry dates and settlement rules in the contract specifications on the trading page.

Risks and Margin Implications

Settlement impacts your margin balance directly. If a position settles at a loss:

• Your available margin decreases, potentially triggering a margin call if it falls below maintenance levels.
• In extreme cases, liquidation may occur if the loss depletes your margin entirely.

Conversely, profitable settlements increase your margin, allowing for larger future positions. Monitoring your leverage ratio and liquidation price before and during settlement is crucial. Coinbase displays these metrics in real-time on the futures trading interface, enabling proactive risk management.

Frequently Asked Questions

Can I withdraw funds immediately after a contract settles?Yes. Once a contract settles—whether manually closed or expired—the resulting funds (profit or remaining margin) are immediately available in your margin balance. You can transfer them to your spot wallet or initiate a withdrawal to an external address without delay.

What happens if I don’t close a futures contract before expiry?Coinbase automatically closes all open positions at the official settlement price. You do not need to act. The platform will credit or debit your margin balance based on the final price, and the position will disappear from your open positions list.

Are settlement fees charged on Coinbase futures?No. Coinbase does not charge separate settlement fees. Trading fees apply when you open or close a position (maker or taker fees), but there is no additional cost for the settlement process itself, whether automatic or manual.

How is the final settlement price determined for expiring contracts?The final price is typically a volume-weighted average price (VWAP) of the underlying asset (e.g., BTC/USD) over a predefined period—usually the last 60 minutes before expiry. This data is publicly verifiable and published in the contract specifications on Coinbase’s platform.