Futures/Options Settlement Rules: A Complete Guide

Understanding Contract Settlement

When Coin-Margined Futures, USDT-Margined Futures, or Coin-Margined Options contracts reach expiration, the platform executes cash settlement using the arithmetic average of the index price during the final hour before expiry (sampled every 200ms). This calculated price serves as:

• Futures Settlement Price for delivery contracts
• Exercise Price for options contracts

All open positions are automatically liquidated at this price, with profits/losses credited to user accounts.

Key Settlement Processes

1. Pending Order Cancellation: All unfilled orders for the expiring contract are canceled
2. Position Liquidation: Remaining positions settle at the calculated delivery/exercise price
3. Balance Adjustment: Results are reflected in account balances (minus applicable fees)

Practical Examples

Futures Settlement Example

Scenario:
Trader O holds 1,000 BTCUSD weekly 1204 long contracts opened at $15,000 until expiration.

Settlement Details:

• Contract face value: $100
• Settlement price: $19,000 (calculated from final hour's index average)
• Position entry: $15,000

Calculation:

Profit = Face Value × Contracts × (1/Entry Price - 1/Settlement Price)
       = 100 × 1,000 × (1/15,000 - 1/19,000)
       = 1.4035 BTC

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Options Exercise Example

Scenario:
Trader K sold 100 ETHUSD-20201204-600-P put options held until expiration.

Exercise Details:

• Contract multiplier: 0.1
• Strike price: $600
• Exercise price: $580 (below strike)
• Position: Short 100 contracts

Calculation:

Seller's Payout = Face Value × Multiplier × Contracts × (Strike - Exercise Price)/Exercise Price
               = 1 × 0.1 × (-100) × (600 - 580)/580
               = -0.34483 ETH

This represents a loss for the option seller.

Risk Management Considerations

In extreme market conditions, settlement may result in negative account balances when:

• Settlement losses exceed available margin
• Option exercise obligations surpass account equity

The platform's risk reserve fund covers these negative balances, with users receiving transaction records marked as:

• "Delivery Overloss Compensation"
• "Exercise Overloss Compensation"

FAQ Section

Q: How is the final settlement price determined?
A: It's the arithmetic average of index prices during the last hour before contract expiry, sampled every 200 milliseconds.

Q: What happens to open orders at settlement?
A: All unfilled orders for the expiring contract are automatically canceled during the settlement process.

Q: Can options be exercised before expiry?
A: European-style options (like these examples) can only be exercised at expiration, unlike American-style options.

Q: How often does settlement occur?
A: Depends on contract type - weekly, bi-weekly, quarterly, or specific expiration dates as per contract terms.

Q: What happens if my account goes negative after settlement?
A: The platform's risk reserve covers the deficit, and you'll receive a compensation record in your transaction history.

Best Practices for Traders

1. Monitor contract expiration dates
2. Understand settlement mechanics before trading
3. Maintain adequate margin for potential obligations
4. Consider closing positions before expiry to avoid automatic settlement

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