What are the settlement procedures for Bybit futures contracts?

Understanding Bybit Futures Contract Settlement

When trading futures contracts on Bybit, it is essential to understand the settlement procedures that govern how positions are closed and profits or losses are realized. Unlike spot trading, futures contracts have a defined lifecycle that ends with settlement. Bybit operates a perpetual futures market, meaning most of its contracts do not have an expiration date but are settled through a funding mechanism. However, for inverse futures and USDT-margined futures, the settlement logic varies slightly depending on contract type and market conditions.

The settlement process ensures that all open positions are accounted for, especially during liquidation, auto-deleveraging, or maintenance events. Settlement on Bybit is automatic and handled by the platform’s matching engine. Traders do not need to manually settle their contracts, as the system executes the process based on real-time market data and risk parameters.

Perpetual Contracts and Funding Rate Settlement

Perpetual contracts on Bybit do not settle in the traditional sense because they do not expire. Instead, they use a funding rate mechanism to align the contract price with the underlying spot price. This process occurs every 8 hours at 00:00 UTC, 08:00 UTC, and 16:00 UTC. During funding, traders either pay or receive funding depending on whether they hold a long or short position and the current funding rate.

• If the funding rate is positive, long position holders pay short position holders.
• If the funding rate is negative, short position holders pay long position holders.

The funding payment is calculated using the formula:Funding Payment = Nominal Value of Position × Funding RateThis payment is deducted from or added to the trader’s wallet balance automatically. It is critical to monitor the funding rate indicator on the Bybit interface, as high funding rates can significantly impact holding costs.

Mark Price and Liquidation-Based Settlement

Bybit uses a mark price to determine when a position should be liquidated, preventing unfair liquidations due to market manipulation or price spikes. The mark price is derived from the average price of the underlying asset across major spot exchanges, combined with a decoupling mechanism.

When a trader’s equity falls below the maintenance margin, the position becomes subject to liquidation. The liquidation process involves:

• The system triggering a liquidation order when the mark price reaches the liquidation price.
• An automated deleveraging mechanism (ADL) stepping in if the insurance fund is insufficient to cover the loss.
• The position being closed at the mark price, and the remaining margin returned to the user (if any).

During liquidation, the settlement is immediate. The user’s position is removed from the order book, and the unrealized PnL is settled in the margin currency—either BTC for inverse contracts or USDT for linear contracts.

Contract Expiry and Quarterly Futures Settlement

Although Bybit primarily focuses on perpetual contracts, it also offers quarterly futures contracts that have a fixed expiry date. These contracts settle upon expiration based on the settlement price, which is calculated as the average spot price over a predefined period—typically the last hour before expiry.

On the expiry date, all open positions are automatically settled:

• The system calculates the final settlement price using data from trusted spot exchanges.
• All open long and short positions are closed at this price.
• Profits or losses are settled in the contract’s margin currency.
• For inverse contracts, BTC is used; for USDT-margined contracts, USDT is used.

Traders cannot hold positions beyond the expiry time. Any open orders are automatically canceled as the contract transitions to settlement.

Insurance Fund and Auto-Deleveraging (ADL) Settlement

In extreme market volatility, a trader’s position may be liquidated, but the system might not find a counterparty at a fair price. To prevent insolvency, Bybit maintains an insurance fund sourced from the profit of liquidated traders. If the insurance fund is depleted, the auto-deleveraging system (ADL) activates.

ADL involves:

• Matching profitable positions with losing liquidated positions.
• Forcing the reduction of highly profitable positions to cover losses.
• Settlement occurs at the bankruptcy price of the liquidated trader.

Each ADL event is ranked based on profitability and leverage, with the most profitable and highly leveraged positions being reduced first. Affected traders receive a notification and can view ADL records in their account history. The settlement here is not optional—it is enforced by the system to maintain market integrity.

Wallet and Margin Settlement Mechanics

All settlements on Bybit directly impact the user’s wallet balance and available margin. When a position is closed—whether by user action, liquidation, or expiry—the realized PnL is settled immediately.

For USDT-margined contracts:

• Profits and losses are denominated in USDT.
• The margin used is also in USDT.
• Settlement is reflected instantly in the futures wallet.

For inverse contracts:

• The margin is posted in BTC.
• PnL is calculated in USD but settled in BTC based on the prevailing BTC/USD price.
• Example: A $1000 profit in a BTCUSD contract results in 1000 / BTC price in USD BTC credited to the wallet.

Traders can view all settlement details under the 'Assets' tab, including transaction history, funding payments, and realized PnL.

Frequently Asked Questions

Q: How often does funding settlement occur on Bybit?Funding settlement happens every 8 hours at 00:00 UTC, 08:00 UTC, and 16:00 UTC. This applies to all perpetual contracts. The funding rate is displayed in real time on the trading interface.

Q: What happens if my position is liquidated?Upon liquidation, your position is closed at the mark price. The system uses the insurance fund to cover the trade. If insufficient, ADL may be triggered. Your remaining margin, if any, is returned to your wallet.

Q: Are quarterly futures settled in cash or physically?Bybit’s quarterly futures are cash-settled. No physical delivery occurs. The settlement amount is credited to your futures wallet in the contract’s margin currency.

Q: Can I opt out of funding payments?No, funding payments are mandatory for holding perpetual positions past the funding intervals. To avoid them, you must close your position before the funding timestamp.