Crypto Trading Contracts: Entry, Expiry & Settlement

A crypto trading contract is a financial derivative instrument that lets traders speculate on cryptocurrency prices without owning the underlying asset. It is not to be confused with a smart contract, which is a type of programmable code on a blockchain. The two terms sound similar but describe entirely different things.

This guide covers all three pillars of crypto contract trading: how to enter a position using margin and leverage, what happens when a futures contract reaches its expiry date, and how settlement works once a contract resolves. The three main contract types (futures, perpetual contracts, and options) each handle these mechanics differently, and the differences matter before you commit capital.

In this article:

• What Is a Crypto Trading Contract?
• The Three Types of Crypto Trading Contracts
• How to Enter a Crypto Trading Contract
• Crypto Futures Contract Expiry
• Settlement Explained
• How Perpetual Contracts Replace Expiry: The Funding Rate
• Liquidation and Risk Management
• Crypto Contracts vs. Traditional Futures
• Is Crypto Contract Trading Right for You?
• Key Takeaways
• Key Terms Glossary
• Frequently Asked Questions

What Is a Crypto Trading Contract? (And How It Differs from Buying Crypto)

A crypto trading contract is a financial derivative agreement that tracks the price of a cryptocurrency without requiring the trader to own the underlying asset. The contract itself is the instrument: not Bitcoin or Ethereum, but an agreement whose value moves in line with those assets.

Spot trading works differently. When you buy Bitcoin on a spot exchange, you own it. You can withdraw it to a wallet, hold it for years, and profit only if the price rises. Contract trading severs that ownership link entirely. You hold a position in an agreement that references the asset's price, not the asset itself.

That separation creates two capabilities spot trading cannot offer. A long position profits when the underlying cryptocurrency price rises; the contract gains value as the price moves in your favour. A short position profits when the price falls. Shorting via contracts does not require borrowing or owning the cryptocurrency, which is a meaningful difference from short selling in traditional equity markets.

Contracts serve two primary purposes. The majority of crypto contract trading is speculative: traders use leverage to amplify potential returns from price movements without intending to own the underlying asset. Beyond speculation, contracts are also used for hedging; for example, a long-term Bitcoin holder might open a short futures contract to protect against a price decline without selling their spot holdings.

Crypto trading contracts are available on both regulated venues (such as the CME) and offshore derivatives exchanges, including Bybit, Binance, and OKX. Most major cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETH), have active futures and perpetual contract markets. Each exchange sets its own contract specifications, settlement rules, and leverage limits.

The three main contract types covered in this article are futures contracts, perpetual contracts, and options contracts. Each handles expiry, settlement, and holding costs in its own way. For traders who prefer a defined-risk, fixed-payout approach, Bybit ODDS offers an alternative structure worth understanding alongside these three. This article covers all four.

The Three Types of Crypto Trading Contracts: Futures, Perpetuals, and Options

Crypto trading contracts fall into three main categories, each with distinct mechanics for expiry and settlement. Understanding the differences determines which instrument fits a given trading strategy.

For traders from traditional markets: Perpetual contracts behave like a continuously-rolled futures position, but the roll cost is made explicit as the funding rate paid between traders rather than embedded in the spread on rollover day.

Futures Contracts: Fixed Expiry, Predictable End Date

A futures contract is a standardized agreement to buy or sell a cryptocurrency at a predetermined price on a specified future date. Both parties are obligated to settle; unlike options, there is no choice involved.

Crypto futures run on 24/7 markets, which sets them apart from traditional exchange-traded futures. They come in weekly, monthly, and quarterly structures. Quarterly contracts typically expire on the last Friday of March, June, September, and December. The futures price tends to track the spot price closely, with the gap between them (the basis) narrowing toward zero as expiry approaches. When futures prices trade above the spot price, the market is said to be in contango; when futures prices trade below spot, it is in backwardation.

A useful way to frame it: a futures contract is like placing a pre-order for an item at today's price. You have committed to the purchase at the agreed price even if the market price changes by the delivery date.

Perpetual Contracts: No Expiry, Continuous Funding

A perpetual contract (also called a perpetual swap, or perp) is a futures-like agreement with no expiry date, allowing traders to hold a position indefinitely. Perpetual contracts were pioneered by BitMEX circa 2016 and represent the majority of crypto derivatives trading volume today. No direct equivalent exists in traditional financial markets.

Without an expiry date forcing price convergence, perpetual contracts use the index price and the funding-rate mechanism to stay anchored to the underlying spot price. The index price is the reference spot price calculated as a weighted average across multiple major exchanges. The funding rate is a periodic payment between long and short holders that pulls the perpetual price back toward the index. Full details are in the funding rate section below.

(Decentralized platforms such as dYdX and GMX use smart contracts to offer perpetual trading on-chain without a centralized exchange, settling positions automatically via blockchain rather than through an exchange's internal ledger.)

Options Contracts: The Right, Not the Obligation

An options contract gives the buyer the right, but not the obligation, to buy or sell a cryptocurrency at a specified price (the strike price) before or at expiry. A call option gives the right to buy; a put option gives the right to sell. The buyer pays a premium upfront, and the maximum loss for the buyer is that premium paid.

This is the key distinction from futures: options give the buyer a choice; futures create a binding obligation. Options mechanics are substantially more complex than futures or perpetuals. This article covers options at an introductory level only. For a full treatment of how crypto options work, see our guide to how crypto options contracts differ from futures.

Options are available on venues including Deribit and OKX Options.

Price View Contracts and Crypto Odds Trading: Defined-Risk Fixed-Payout Contracts

Beyond futures, perpetuals, and options, defined-risk fixed-payout contracts offer traders a simpler structure. Bybit ODDS (also called Price View Contracts) pays a fixed amount if a price direction condition is met at expiry, with your maximum loss capped at the stake. There is no leverage, no margin, and no liquidation risk. For context on how these contracts work mechanically, see our guide to fixed return contracts in crypto.

For example, a short-duration ETH contract on Bybit ODDS lets you take a directional view on ETH price within a 15-minute window — you know your maximum loss upfront and there is no liquidation risk beyond the stake.

How to Enter a Crypto Trading Contract: Margin, Leverage, and Position Sizing

Entering a crypto trading contract requires three decisions before a position is open: how much margin to deposit, which leverage multiplier to apply, and whether to go long or short. The exchange holds the margin as collateral against the position.

The process follows a clear sequence:

1. Select your contract type and underlying asset (e.g., a BTC quarterly futures or BTC perpetual).
2. Choose your margin mode: isolated margin or cross margin.
3. Set your leverage multiplier (2x, 5x, 10x, or higher).
4. Decide your direction: long if you expect the price to rise, short if you expect it to fall.
5. Place your order using a market order (fills immediately at the current price) or a limit order (fills only when the price reaches your specified level).

Entry price selection follows from your market analysis. Limit orders let you specify a target level; market orders fill at the current price, which suits situations where timing matters more than precision.

One term to flag before going further: the mark price, not the last traded price, is what the exchange uses to calculate your unrealized profit and loss and to trigger liquidation. The mark price and the last traded price can diverge, particularly in low-liquidity markets. The mark price section explains why this matters.

Initial Margin and Maintenance Margin: What You Need to Open and Keep a Position

Margin is the collateral you deposit with an exchange to open and maintain a leveraged contract position.

The initial margin is the minimum collateral required to open a position, typically expressed as a percentage of the total position value. At 10x leverage, opening a $10,000 BTC position requires $1,000 in initial margin (10% of notional value).

The maintenance margin is the minimum collateral required to keep a position open. If the position's value, calculated at mark price, falls below this threshold, liquidation is triggered automatically. Maintenance margin requirements vary by exchange and by position size; always check your exchange's current contract specifications before trading.

Isolated Margin vs. Cross Margin: Controlling How Much You Can Lose

Margin mode determines how much of your account is at risk for a given position, and the choice between isolated margin and cross margin is one of the most consequential decisions a contract trader makes.

With isolated margin, only the collateral allocated to that specific position is at risk. If the position hits the liquidation threshold, the exchange closes it and you lose the allocated margin. Nothing else in your account is touched. This caps the downside at a known, defined amount.

With cross margin, the entire account balance serves as collateral across all open positions. A loss on one position draws from the funds available across your whole account, which can prevent premature liquidation during a short-lived price spike but exposes more capital. Most exchanges default to cross margin; traders who want isolated protection must select it manually.

Isolated margin limits the downside to the amount you allocate. Cross margin can absorb temporary drawdowns but puts your full balance in play.

Leverage: How It Amplifies Both Gains and Losses

Leverage is a multiplier that allows a trader to control a position larger than the margin deposited, expressed as 2x, 5x, 10x, up to 100x on many exchanges. Leverage is built into the contract mechanism; the exchange is not lending money in the traditional sense.

Think of leverage as a magnifying glass for your position: it makes gains larger and losses larger in equal proportion.

Example: BTC long position at 10x leverage

• Margin deposited: $1,000
• Leverage: 10x
• Notional position size: $10,000 ($1,000 x 10)
• Entry price: $50,000 per BTC
• Scenario A - BTC rises to $55,000 (+10%): Profit = $1,000 (100% return on margin)
• Scenario B - BTC falls to $45,000 (-10%): Loss = $1,000 (full margin consumed; position approaches liquidation)

Note: Actual P&L will vary based on trading fees, exact execution price, and exchange-specific specifications.

Risk Note: At 10x leverage, a 10% adverse price move consumes the entire margin. At 100x leverage, a 1% adverse move achieves the same result. Leverage amplifies gains and losses in equal proportion. Always calculate your liquidation price before entering a position.

In isolated margin mode, the maximum loss on a position is capped at the margin allocated to it. In cross margin mode, losses can draw from the full account balance. The answer to "can I lose more than I put in?" depends on which margin mode you are using and what your total account balance is.

Crypto Futures Contract Expiry: What Happens When a Contract Reaches Its End Date

When a futures contract reaches its expiry date, the exchange automatically closes your open position and settles it at the settlement price. You do not need to take any action. The exchange handles the entire process.

Here is what happens at expiry, step by step:

1. The exchange identifies all open positions in the expiring contract.
2. It calculates the settlement price using a time-weighted average of the index price over a defined window before expiry.
3. Your P&L is computed as the difference between your entry price and the settlement price, adjusted for position size and leverage.
4. The resulting profit or loss is credited or debited to your account in the quote currency (typically USDT).

The expiry date is the predetermined date and time at which a futures contract terminates and is automatically settled. Quarterly contracts typically expire on the last Friday of March, June, September, and December, at 08:00 UTC on most major exchanges. Weekly and monthly expirations are also available on most platforms. Specific schedules vary by exchange; always verify with your exchange's contract specifications.

As the expiry date approaches, the basis (the difference between the futures price and the spot price) naturally narrows toward zero. At settlement, both prices converge at the spot index price, and the final profit or loss is calculated from that convergence.

Open interest (the total number of outstanding positions that have not been settled or closed) often rises sharply in the days before expiry as traders roll positions or close them before settlement.

What happens to unrealized P&L at expiry? It becomes realized P&L, calculated using the settlement price rather than the mark price. The USDT equivalent of this realized P&L is then credited or debited to your account balance. The settlement price methodology is covered in detail in the next section.

Traders who want to maintain exposure past expiry can roll their position: close the expiring contract and open a new one with a later expiry date. Most exchanges support manual rollovers; some offer auto-roll functionality. Rolling incurs transaction fees and, if the new contract trades at a premium to spot (contango), an implicit cost is embedded in the entry price of the new contract.

Example: BTC quarterly futures expiry P&L

• Entry price (long position): $40,000
• Settlement price at expiry: $45,000
• Notional position size: $10,000
• Gross P&L: ($45,000 - $40,000) / $40,000 x $10,000 = $1,250
• Settlement: $1,250 credited to account in USDT (minus trading fees)

Note: Actual P&L will vary based on trading fees, position size, and leverage applied.

In traditional CME futures, physical delivery is possible for some commodities. In crypto futures on most offshore exchanges, almost all contracts settle in cash: the USDT equivalent of the P&L, not actual Bitcoin. The mechanics of that settlement process are what the next section covers.

Settlement Explained: Cash Settlement, Coin Settlement, and How Your P&L Is Calculated

Settlement is the process by which a futures contract is resolved. The exchange calculates the final profit or loss, then credits or debits your account. Settlement is distinct from closing a position: closing is something you do before expiry; settlement is what the exchange does at expiry.

For perpetual contracts, there is no single settlement event. The funding-rate mechanism serves as the ongoing settlement equivalent, transferring small payments between traders continuously.

How the Settlement Price Is Calculated

The settlement price is the specific price used to calculate your final P&L at contract expiry. It is not the mark price, and it is not the last traded price.

Most exchanges calculate the settlement price using a time-weighted average price (TWAP) of the index price over a defined window before expiry. This window is commonly the last 30 minutes to one hour, depending on the exchange. The TWAP methodology prevents a single large trade or a brief price spike from manipulating the settlement price at the critical moment of expiry.

The index price underpins this calculation. It is the reference spot price for a cryptocurrency, calculated as a weighted average across multiple major spot exchanges (such as Binance spot, Coinbase, Kraken, and Bitstamp). Because it aggregates prices from several sources, no single exchange can move it artificially.

CME Bitcoin futures use a comparable methodology: settlement is based on the CME CF Bitcoin Reference Rate, calculated at 4:00 PM London time on the last Friday of the contract month. Offshore crypto exchanges use similar TWAP logic but apply it to their own index prices, which aggregate from multiple reference exchanges rather than from a regulated reference rate.

Cash settlement is standard across most offshore crypto exchanges, though coin-margined alternatives exist. The table below shows the full comparison.

Genuine physical delivery in crypto (receiving actual Bitcoin) is rare and limited to specific institutional products. The vast majority of retail contracts are cash-settled. Always verify current product offerings with your exchange, as product structures change over time.

Mark Price vs. Last Price: Why They Are Different and Which One Matters

Mark price is the fair value price of a contract as calculated by the exchange. It is used to determine your unrealized P&L and to trigger liquidation. It is not the last traded price.

Three prices appear in most exchange interfaces, and all three are distinct:

• Index price: the reference spot price aggregated from multiple major spot exchanges, providing a manipulation-resistant benchmark
• Mark price: derived from the index price plus an exponential moving average of the difference between the futures price and the index price; the fair value used for P&L and liquidation calculations
• Last price: the most recent trade executed on that exchange's order book

The hierarchy is direct: index price feeds the mark price calculation; mark price triggers liquidation.

If BTC's last traded price on your exchange shows $50,200 but the mark price is $50,000, your unrealized P&L is calculated using $50,000. Mark price exists specifically to prevent a temporarily manipulated last price from triggering mass liquidations. Without it, a brief price spike on a single exchange's order book could wipe positions that had no legitimate business being liquidated.

Think of mark price as the appraiser's valuation of your position, and last price as the most recent sale price on the street. The exchange uses the appraiser's figure for all official calculations.

Unrealized P&L is calculated using mark price while your position is open. Realized P&L is locked in only when you close the position or the contract settles at expiry.

USDT-Margined vs. Coin-Margined Contracts: Which Settlement Currency Will You Receive?

A USDT-margined contract (also called a linear contract) is priced in USD, margined in USDT, and settles in USDT. The P&L you receive is dollar-stable: a $1,000 profit on a USDT-margined contract means $1,000 in USDT hits your account. This is the most common structure for retail traders.

A coin-margined contract (also called an inverse contract) uses the underlying cryptocurrency as both margin and settlement currency. If you hold a BTC inverse contract, your margin is held in BTC, and your P&L is paid in BTC. That introduces an additional layer of price exposure: if BTC drops sharply before you withdraw, your BTC-denominated profit is worth less in dollar terms than it was when you made it. Coin-margined contracts are available on platforms including Bybit and Deribit.

How Perpetual Contracts Replace Expiry: The Funding Rate Mechanism Explained

Perpetual contracts have no expiry date, which solves the rollover problem faced by futures traders. But without an expiry date forcing the contract price back to spot at a fixed point, something else must keep them aligned. That mechanism is the funding rate.

The funding rate is a periodic payment exchanged between traders holding long and short positions in a perpetual contract, calculated based on the difference between the perpetual contract price and the spot index price. This difference is sometimes labelled the premium index in exchange interfaces. On most major exchanges including Bybit, Binance, and OKX, funding payments occur every 8 hours (three times per day). Some exchanges use different intervals; always check your exchange's specifications.

The direction logic works as follows:

• When the perpetual contract price trades above the spot index price, the market is leaning bullish. The funding rate turns positive, meaning long position holders pay short position holders.
• If the perpetual price drops below the spot index, the dynamic reverses. The funding rate turns negative, and short holders pay long holders instead.

This creates a self-correcting mechanism. If the perpetual price rises far above the index, the positive funding rate makes holding long positions increasingly expensive. Traders are incentivized to close longs and open shorts, which pulls the perpetual price back toward the index. The funding rate creates a continuous financial incentive for traders to close the gap.

Funding payments flow directly between traders (peer to peer). Some exchanges retain a small percentage as a fee; the rest transfers between counterparties.

Example: Funding rate cost on a $10,000 BTC long perpetual position

• Position size: $10,000 (long BTC perpetual)
• Funding rate: 0.01% (positive; longs pay shorts)
• Payment frequency: every 8 hours (3 payments per day)
• Cost per payment: $10,000 x 0.01% = $1.00
• Daily cost: $1.00 x 3 = $3.00
• Monthly cost (30 days): $3.00 x 30 = $90.00

Note: Funding rates fluctuate constantly and can be positive or negative. Actual costs will vary. Always check the current rate on your exchange before holding a position overnight.

Persistently high positive funding signals that the market is leaning long and may be overextended. Persistently negative funding signals bearish sentiment, with shorts paying longs to maintain their positions.

For TradFi traders: In traditional futures markets, the cost of holding a position across an expiry date is embedded in the basis and appears as roll yield when rolling positions. In crypto perpetuals, this cost is made explicit as the funding rate: paid directly between traders at regular intervals rather than through price differentials when rolling contracts.

The funding rate is not an interest rate on borrowed money and is not the same as a rollover cost in traditional futures. It is a market-equilibrating payment between the two sides of an open position.

Liquidation and Risk Management: What Every Contract Trader Must Understand

Liquidation in crypto contract trading is the automatic forced closure of a position by the exchange when the trader's margin falls below the maintenance margin threshold. It is a position closure event; not to be confused with corporate bankruptcy, which is an entirely different use of the word.

Liquidation is triggered by the mark price, not the last traded price. This distinction matters because the last traded price can spike temporarily on thin order books, while the mark price remains anchored to the aggregated index, making it resistant to short-term manipulation. The mark price section above explains why these two prices differ.

When the mark price moves against your position far enough that your remaining margin falls below the maintenance margin requirement, the exchange's liquidation engine closes the position automatically. The trader loses the posted margin on that position.

The liquidation price for a long position can be estimated using a simplified formula:

Liquidation Price (long) = Entry Price x (1 - 1/Leverage + Maintenance Margin Rate)

At 10x leverage with a 0.5% maintenance margin rate, a long BTC position entered at $50,000 gives an approximate liquidation price of: $50,000 x (1 - 0.1 + 0.005) = $45,250. Actual figures vary by exchange and position tier; always use your exchange's liquidation calculator.

In isolated margin mode, the maximum loss equals the margin allocated to that specific position. In cross margin mode, losses can draw from the full account balance, meaning a position loss can reduce funds available for other positions.

Risk Note: At 10x leverage, a 10% adverse price move consumes the entire margin. At 100x leverage, a 1% adverse move achieves the same result. Liquidation is triggered by the mark price, not the last traded price, which can differ meaningfully in low-liquidity markets. Always set a stop-loss order before the estimated liquidation price to exit on your own terms.

Crypto exchanges maintain an insurance fund to cover losses when a liquidated position cannot be closed at the liquidation price, for instance when the market moves so fast that the position slips past the liquidation level before the engine can act. If the insurance fund is insufficient, auto-deleveraging (ADL) occurs: profitable traders on the opposite side of the market have their positions partially reduced to cover the deficit. ADL is a crypto-native mechanism with no direct equivalent in regulated markets.

In regulated futures markets, a central clearinghouse (such as CME Clearing) guarantees contract performance regardless of counterparty default. In crypto markets, the exchange's insurance fund serves a comparable purpose, but the level of protection depends on that fund's size and the exchange's risk management practices.

The primary tool to avoid liquidation is a stop-loss order. Placing a stop-loss at a price level where the loss is acceptable (and specifically before the liquidation price) means you exit on your own terms rather than having the exchange force-close the position.

Crypto Contracts vs. Traditional Futures: Key Differences for TradFi Traders

Traders coming from traditional derivatives markets will recognize most of the mechanics covered in this article. Expiry, margin, settlement, and basis all translate directly. Two features of crypto contracts have no direct traditional equivalent: the perpetual contract and the funding rate.

The perpetual contract and the funding rate are the genuinely novel elements for anyone entering from traditional markets. Expiry mechanics, settlement methodology, and margin mechanics all map to familiar concepts with operational differences suited to 24/7 crypto markets. Cash settlement is standard across most offshore exchanges, but coin-margined alternatives exist. Regulatory oversight differs substantially between CME-listed products and offshore exchange derivatives.

Is Crypto Contract Trading Right for You? A Pre-Decision Checklist

Contract trading gives experienced traders tools that spot markets cannot offer: the ability to short, to hold leveraged positions, and to hedge existing holdings. Those same tools amplify the cost of mistakes.

Before opening a futures or perpetual contract position, you should be able to do all of the following:

1. Explain the difference between a futures contract and a perpetual contract
2. Calculate the notional size of a position given a margin amount and leverage multiplier
3. Estimate your approximate liquidation price based on entry price, leverage, and maintenance margin rate
4. Describe what happens to an open futures position at expiry without any action on your part
5. Explain what cash settlement means and what currency will appear in your account after settlement
6. Calculate the daily funding rate cost on a perpetual position given position size and rate
7. Distinguish mark price from last price, and state which one triggers liquidation

Contracts are not inherently more profitable than spot trading. They are more capital-efficient and more directionally flexible, but leverage accelerates losses as readily as gains. Starting with lower leverage (2x-5x) on Bybit, using isolated margin to cap downside, and practicing on a paper trading or testnet account before committing real capital reduces the risk of avoidable losses.

If you are newer to directional trading, you may also find it useful to explore lower-complexity approaches first. A Bitcoin range trading strategy can help you build price-reading skills in sideways markets, while a short-term Bitcoin directional trading guide covers momentum-based setups with clearer entry and exit logic. If you want exposure to crypto price movements without using leverage at all, see our guide on how to trade crypto without leverage. For guidance on selecting an exchange for contract trading, see our guide to how to choose a crypto derivatives exchange.

Key Takeaways

• A crypto trading contract is a financial derivative that tracks cryptocurrency prices without requiring ownership of the underlying asset. The three main types are futures contracts, perpetual contracts, and options contracts.
• Entering a contract requires depositing margin (collateral), choosing a leverage multiplier, and opening a long or short position. Isolated margin caps losses to the allocated position; cross margin exposes the full account balance.
• Futures contracts expire on a fixed date. The exchange automatically settles open positions at the settlement price; no manual action is required. Traders can roll positions to maintain exposure past expiry.
• Settlement price is calculated using a time-weighted average price (TWAP) of the index price over the final 30-60 minutes before expiry. Most retail crypto contracts settle in USDT (cash settlement), not actual Bitcoin.
• Perpetual contracts have no expiry date. The funding rate (typically paid every 8 hours) replaces expiry as the price-anchoring mechanism: positive rates make longs pay shorts, pulling the perpetual price back toward the spot index.
• Liquidation occurs when the mark price (not the last traded price) reaches the liquidation threshold. Stop-loss orders are the primary tool for exiting before the exchange force-closes a position.

Key Terms Glossary: Crypto Contract Terminology Reference

The following terms appear frequently in exchange interfaces and trading communities and are defined here as a quick reference.

Open interest: The total number of outstanding contract positions that have not been settled or closed. A measure of market participation and liquidity; not the same as trading volume, which counts each transaction.

Basis: The difference between the futures contract price and the spot price. Narrows toward zero as expiry approaches. Not to be confused with "cost basis" in tax accounting.

Contango: A market condition in which the futures price trades above the spot price. Common in bullish crypto markets where demand for long exposure pushes futures premiums higher.

Backwardation: A market condition in which the futures price trades below the spot price. Often signals bearish sentiment or excess hedging demand from holders looking to sell forward.

Contract size: The standardized quantity of the underlying asset represented by one contract. Varies by exchange and instrument.

Notional value: The total dollar value of the position controlled, calculated as margin multiplied by leverage. A $1,000 margin position at 10x leverage has a $10,000 notional value.

Funding rate: The periodic payment exchanged between long and short holders in perpetual contracts to keep the contract price anchored to the index price. See the funding rate mechanism section for full details.

Mark price: The fair value price calculated by the exchange from the index price, used for unrealized P&L and liquidation triggers. See the mark price section for full details.

Index price: The reference spot price aggregated from multiple major exchanges, used as the basis for mark price and settlement price calculations.

Settlement price: The final price used to calculate P&L at contract expiry. Typically a TWAP of the index price over the last 30-60 minutes before expiry.

Liquidation price: The mark price level at which a position is automatically closed by the exchange to prevent the account balance from going negative.

Frequently Asked Questions About Crypto Trading Contracts

What is a crypto trading contract?

A crypto trading contract is a financial derivative agreement that tracks the price of a cryptocurrency without requiring the trader to own the underlying asset. The contract's value moves with the asset's price, allowing traders to profit from both rising and falling markets using long or short positions. The category covers futures contracts, perpetual contracts (perps), and options contracts.

What happens when a crypto futures contract expires?

When a futures contract expires, the exchange automatically closes your open position and settles it at the settlement price. No action is required from the trader. The exchange calculates the difference between your entry price and the settlement price, adjusts for your position size and leverage, then credits or debits the resulting P&L to your account in the quote currency (typically USDT).

Can you lose more than you invested in crypto contract trading?

In isolated margin mode, your maximum loss is capped at the margin allocated to that specific position. You cannot lose more than you deposited for that trade. In cross margin mode, losses can draw from your full account balance, which means a single position can exhaust funds across your whole account. The margin mode you select determines your maximum exposure.

What is the difference between a perpetual contract and a futures contract?

A futures contract has a fixed expiry date and settles automatically when that date arrives. A perpetual contract has no expiry date and can be held indefinitely. The key trade-off: futures traders face rollover costs when maintaining exposure past expiry; perpetual traders pay or receive the funding rate for as long as the position remains open.

How does the funding rate work in perpetual contracts?

The funding rate is a periodic payment exchanged between long and short position holders, typically every 8 hours on most major exchanges. When the perpetual price trades above the spot index price, the funding rate is positive and longs pay shorts. When it trades below, the rate is negative and shorts pay longs. This keeps the perpetual price anchored to the underlying asset without needing an expiry date.

What is cash settlement in crypto futures?

In cash settlement, the exchange calculates the difference between your entry price and the settlement price, then credits or debits that amount in the account's quote currency (typically USDT). No actual Bitcoin or other cryptocurrency changes hands. If you held a long BTC futures contract and BTC rose $2,000 from your entry price, you receive $2,000 in USDT at settlement, not 0.04 BTC.

What is mark price and why does it differ from the last traded price?

Mark price is the fair value price calculated by the exchange using the spot index price. It is used for unrealized P&L and liquidation triggers. The last price is simply the most recent trade executed on that exchange's order book. The two can diverge, especially in low-liquidity conditions. Mark price exists to prevent a temporarily manipulated last price from triggering unjustified liquidations across the exchange.

How do I avoid liquidation when trading crypto contracts?

Liquidation occurs when the mark price reaches your liquidation price. To reduce that risk: use lower leverage (which increases the distance between entry and liquidation price), select isolated margin to cap the maximum loss, set a stop-loss order at a price level you are willing to accept before the liquidation price, and monitor your margin ratio regularly. Adding margin to a pressured position also increases the liquidation distance.

Do I need to manually close my position when a futures contract expires?

No. If you hold an open futures position to the expiry date, the exchange closes it automatically at the settlement price and adjusts your account balance for the resulting profit or loss. Manual action is only needed if you want to close before expiry or roll the position to a new contract with a later expiry date.

Is trading crypto contracts the same as buying crypto on a spot exchange?

No. In spot trading, you own the cryptocurrency after purchase and can withdraw it to a wallet. In contract trading, you hold a derivative position that tracks the cryptocurrency's price; you never own the underlying asset. Contracts allow you to profit from price decreases (via short positions) and to control larger positions with less capital through leverage, neither of which is available in standard spot trading.

What is crypto odds trading?

Crypto odds trading is a category of contract trading where the outcome is binary: a trader stakes a fixed amount on a specific price condition — typically whether the price will be up or down at expiry — and either receives a fixed payout or loses the stake. Unlike the futures and perpetual contracts covered in this article, crypto odds trading involves no leverage, no margin, and no liquidation risk. Bybit ODDS implements crypto odds trading as Price View Contracts on BTC and ETH, with expiry durations from minutes to hours. The maximum loss on any crypto odds trade is always the initial stake — a fundamentally different risk profile from the leveraged contract types covered in this guide.

Risk Disclosure: Crypto trading contracts, including futures and perpetual contracts, are complex financial instruments that carry a high risk of loss due to leverage. You may lose some or all of your deposited margin. These instruments are not appropriate for all investors. This article is provided for educational purposes only and does not constitute financial advice, investment advice, or a recommendation to trade any specific instrument or take any specific position. Always conduct your own research and consult a qualified financial adviser before trading derivatives.