Derivatives Overview

Contracts Overview

Perpetual Contract Overview

A perpetual contract is a derivative product similar to futures. It differs from futures as

There is no expiration or settlement date.

A perpetual contract mimics a margin-based spot market. The trading price is anchored to the reference index price by the funding mechanism.

Trading Mechanism of Perpetual Contract

When trading a perpetual contract on Bybit, apart from the principle of margin trading, traders should be aware of:

Mark Price: Mark price is used to trigger liquidation.

Initial Margin and Maintenance Margin: Initial margin determines the margin to be used, and the Maintenance Margin determines the Liquidation Price.

Let's assume that funding payments occur every 8 hours. The funding fee is exchanged directly between buyers and sellers every 8 hours. When the funding rate is positive, long position holders pay to short position holders. When the funding rate is negative, short position holders pay long position holders. Traders will only pay or receive the funding fee if they hold a position at the funding timestamp.Funding Fee if they hold a position at the funding timestamp.

Let's assume that funding payments occur every 8 hours. The funding timestamps are 00:00 UTC, 08:00 UTC and 16:00 UTC.

Futures Contracts

Bybit offers quarterly Inverse Futures contracts and USDC Futures contracts for the current week, next week, third week, current month, next month, third month, current quarter, and next quarter. The contract delivery time is 8AM UTC on the delivery date. Upon contract expiration, the system will use the average index price of the last half hour as the settlement price for all open contracts. The delivery settlement will be completed within five (5) minutes after expiration.

Options Overview

Bybit offers European-style cash-settled options. European options cannot be exercised before the expiration date and can only be exercised at the expiration. On Bybit, European options are automatically exercised at expiration for in-the-money options. Cash settlement means that at the expiration of the option contract, the seller of the option contract pays the proceeds to the buyer instead of transferring the underlying asset. Bybit's options are priced in USDC and settled in USDC. This price is determined using the latest traded price of the underlying futures or spot. Additionally, the implied volatility corresponding to the option price will also be displayed. One Call option represents the right to buy 1 BTC or 1 ETH at a specific price (the strike price), while one Put option represents the right to sell 1 BTC or 1 ETH at a specific price (the strike price).

To learn more about the trading-related details of each contract, please click here.

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Funding Fee

Funding fee = Position value * Funding rate

The funding rate consists of two parts: Interest Rate and Premium Index.

Bybit calculates the Interest Rate (I) and Premium Index (P) every minute, and then performs an N*-Hour Time-Weighted-Average-Price (TWAP) over the series of minute rates.

The Funding Rate is next calculated with the N*-Hour Interest Rate component and the N*-Hour premium / discount component. A +/−0.05% dampener is added.

*N = Funding Time interval. If funding occurs once every 8 hours, N = 8. And if funding occurs once per hour, N = 1.

Funding Rate (F) = Premium Index (P) + clamp (Interest Rate (I) − Premium Index (P), 0.05%, −0.05%)

Hence, if (I − P) is within +/−0.05%, then F = P + (I − P) = I. In other words, the funding rate will equal the Interest Rate.

This calculated funding rate is then applied to a trader’s position value to determine the funding fee to be paid or received at the funding timestamp.

Interest Rate (I) = Price Interest Rate Index − Base Rate Index/Fund Rate Interval

Interest Quote Index = The interest rate for borrowing the quoted currency

Interest Base Index = The interest rate for borrowing the base currency

Funding Interval = 24/Funding Time interval

To learn more about the funding rates of each contract, please click here.

Index Price

The Index Price represents the market consensus price of the underlying asset. It's derived from a weighted average of multiple spot exchange quotes, adjusted by data usability and weight adjustment factors. Test of data usability includes data’s timeliness and validity. The quoted price of reference exchanges that have passed the usability test will be weighted by an adjusted weight based on trading volume and price distance from the volume-weighted average price. Ultimately, the Index Price of each pair is calculated by multiplying the prices of the various major spot exchanges by its adjusted weight.

For index references, please click here.

Mark Price Overview

Mark Price for Perpetual Contracts

Bybit uses the Mark Price to set the Liquidation Trigger Price, which measures unrealized profit and loss but does not affect the actual profit and loss of traders. Only when the Mark Price reaches a trader's Liquidation Price, the trader's position will be liquidated.

Calculation of Mark Price

Mark Price = Median (Price 1, Price 2, Last Traded Price)

Price 1 = Index Price × [1 + Last Funding Rate × (Time Until Funding /8)]

Price Level 2 = Index Price + 5-min Moving Average

5-min Moving Average = Moving Average [(Bid Price + Ask Price) / 2 - Index Price], with a 5-minute interval, and values taken every second

Mark Price for Futures Contracts

Bybit uses fair price marking to avoid liquidation caused by low liquidity or market manipulation. Liquidation is triggered by Mark Price. Mark Price = Index Price * (1 + Basis Rate) Note: When an order is executed, you may see an immediate unrealized profit/loss due to the difference between the Last Traded Price and the Mark Price. It does not mean that you have made a profit or loss.

Mark Price for Option Contracts

The Mark Price of an Option contract is determined in real-time by Bybit's option pricing model and is usually the average of the best bid and best ask prices. The Mark Price is calculated using the Black-76 model by inputting the forward price, strike price, time to expiration, interest rate, and implied volatility.

Spline Volatility Surface

SABR Volatility Surface

Typically, Bybit has Futures contracts with the same expiration date as it's Options contracts, in which case the Mark Price of the Futures contract will be used as the forward price. Otherwise, the forward price will be calculated based on the market's call/put parity relationship. In case of market volatility, to reflect market sentiment, Bybit's risk management team may decide to stop automatic model fitting and manually determine the implied volatility.