What happens at contract settlement on Bybit?

Understanding Contract Settlement on Bybit

When traders engage in perpetual contracts or inverse futures on Bybit, the term 'contract settlement' may cause confusion, especially for those transitioning from traditional finance. In the context of Bybit, it's essential to clarify that perpetual contracts do not have a maturity date and thus are never settled in the traditional sense. Instead, what users often refer to as 'settlement' is actually the process of funding payments or the liquidation of positions. True contract settlement only applies to inverse futures contracts, which have fixed expiration dates.

For inverse futures, settlement occurs at the predetermined expiration time. At this moment, all open positions are automatically closed based on the final settlement price, calculated using the average index price over a specific window before expiry. This ensures fairness and prevents price manipulation. The profit or loss is then credited or debited from the trader’s wallet balance in BTC (for USDⓈ-margined contracts, it’s settled in USDT).

Funding Rate Mechanism and Periodic Payments

Although perpetual contracts don’t settle, they incorporate a funding rate mechanism to keep the contract price aligned with the underlying spot market. This funding exchange happens every 8 hours at 04:00, 12:00, and 20:00 UTC. During these intervals, traders either pay or receive funding depending on whether they hold long or short positions and the current funding rate.

The funding rate is composed of two parts: the interest rate and the premium. On Bybit, the interest rate component is usually close to zero, so the premium dominates. If the funding rate is positive, long position holders pay shorts. If negative, shorts pay longs. This transfer is automatic and executed directly between traders—Bybit does not profit from it.

To view the upcoming funding time and rate:

• Navigate to the contract trading page
• Locate the funding indicator beneath the price chart
• Hover over or click it to see the exact time remaining until next funding and the current rate percentage

These periodic transfers are critical for maintaining price equilibrium and should not be mistaken for settlement.

Liquidation vs. Settlement: Key Differences

Traders sometimes confuse liquidation with settlement, but they are fundamentally different processes. Liquidation occurs when a trader’s margin falls below the maintenance threshold, triggering an automatic closure of the position by the system. This is a risk management feature, not a scheduled event like settlement.

In contrast, settlement on Bybit for inverse futures happens only once—at expiry. During liquidation:

• The position is closed at the liquidation price
• A portion of the margin is lost, potentially including the entire initial margin
• An insurance clear fee may apply if the liquidation results in a debt

Settlement, however, involves no penalty. It is a neutral process where all outstanding contracts are resolved at the mark price derived from the index. Traders must monitor their expiring futures positions and either close them manually or allow the system to settle them automatically.

Steps Involved in Futures Contract Settlement

For quarterly futures contracts on Bybit, settlement follows a precise sequence:

• Ensure your position remains open past the countdown timer visible on the trading interface
• As the expiry approaches, the system begins calculating the final settlement price using a 30-minute time-weighted average of the index price
• At the exact expiry time, all open positions are closed at this final price
• Profits or losses are immediately reflected in your wallet balance
• The settled contracts disappear from the open positions tab and appear in order history or transaction records

No action is required to initiate settlement—it is fully automated. However, traders can avoid automatic settlement by closing their positions manually before the expiry time. This allows control over exit pricing and timing.

Post-Settlement Wallet and Ledger Updates

After a futures contract settles, Bybit updates several internal systems to reflect the outcome. Your wallet balance changes based on the realized P&L. For BTCUSD quarterly contracts, the settlement asset is BTC, so gains or losses affect your BTC balance directly.

Check your updated balance by:

• Going to the Assets section
• Selecting Wallet or Account Overview
• Filtering transaction history by Derivatives or Futures Settlement

Additionally, the Profit & Loss (P&L) statement in the account history will show the exact amount credited or debited. These records are vital for tax reporting and performance tracking. Note that settled positions no longer contribute to open risk metrics such as maintenance margin or leverage exposure.

Common Misconceptions About Settlement on Bybit

Many new users assume that all derivative products on Bybit undergo regular settlement. This is incorrect. Only inverse futures and USDT-margined futures with expiry dates settle. Perpetual contracts, which make up the majority of trading volume, operate indefinitely.

Another misconception is that settlement implies fees. Bybit charges no settlement fees. Any cost incurred comes from trading activity, such as taker/maker fees or funding payments, not from the settlement process itself.

Some also believe that settlement resets account status or affects other open positions. In reality, settlement only impacts the specific contract series that has expired. All other positions, balances, and orders remain unaffected.

Frequently Asked Questions

What time does Bybit settle futures contracts?Bybit settles quarterly futures contracts at 12:00 UTC on the last Friday of each quarter. The exact date depends on the contract specification, such as the March, June, September, or December expiry cycle.

How is the final settlement price determined?The final settlement price is calculated as the 30-minute time-weighted average price (TWAP) of the underlying index prior to expiry. This method prevents last-second volatility from distorting the settlement value.

Can I withdraw funds immediately after settlement?Yes. Once the settlement process completes and your wallet balance reflects the updated amount, you can withdraw funds normally, subject to standard withdrawal limits and security checks.

Do I need to manually close my futures position before settlement?No. If you leave a futures position open past expiry, Bybit will automatically settle it. However, closing manually beforehand gives you control over the exit price and timing.