What is Settlement Price
In futures trading, the Settlement Price serves as the benchmark for evaluating position market values, calculating floating PNL (profit and loss), and executing daily settlements. It refers to the average opening price when a position is opened, the price calculated after adding to the position, and the mark price at the time of daily settlements.
How Settlement Price is Determined:
1. When opening a position:
Settlement Price = Average Opening Price (original cost benchmark).
2. When adjusting a position:
(1) Without adding to positions: Settlement Price = Mark Price at settlement time
(2) When adding to positions:
- USDⓈ-Margined Contract: Settlement Price = (Previous Settlement Price × Position Size + Added Position Value) / Total Position Size
- Coin-Margined Contract: Settlement Price = (Total Position Size × Contract Face Value) / (Position Size × Contract Face Value / Previous Settlement Price + Added Position Value)
3. Periodic settlements: The settlement baseline is reset based on Mark Price at daily settlement cycles (00:00, 08:00, 16:00 UTC), converting floating profit and loss into realized gains.
Settlement Price vs Mark Price
| Price | Settlement price | Mark price |
| Definition | The benchmark price used to evaluate position values, calculate floating PNL, and execute daily settlements | Real-time assessment of the theoretical fair value of contracts, serving as a benchmark to avoid abnormal fluctuations and determine liquidation levels |
| Scenario |
1. Calculate daily profit and loss to manage position cost 2. Adjust margin levels 3. Control overnight risk |
1. Real-time liquidation assessment for risk management 2. Calculate funding rates for arbitrage opportunities |
🔗Learn more: What is Mark Price >>
The Importance of Settlement Price
1. Risk management: Calculates real-time account equity to trigger liquidation or margin call notifications
2. PNL calculation: Computes unrealized and realized profits/losses
3. Market reference: Provides price signals for trading strategies for the next day
4. Example:
Assume you open a long position in ETHUSDT perpetual contract, with auto settlement enabled, the changes in position PNL during different settlement hours are as follows:
| Time (UTC) |
Operation | Position Size Change (ETH) |
Executed Price (USDT) |
Avg. Opening Price (USDT) | Mark Price (USDT) |
Settlement Price (USDT) |
Unrealized PNL (USDT) |
Realized PNL (USDT) |
| 00:00 | Open(Long) | 1 | 2000 | 2000 | 2000 | 2000 | 0 | 0 |
| 04:00 | Add position | +1 | 2300 | 2150 | 2300 | 2150 | +300 | 0 |
| 08:00 | Settlement | / | / | 2150 | 2300 | 2300 | 0 | +300 |
| 12:00 | Add position | +1 | 2600 | 2300 | 2600 | 2400 | +600 | +300 |
Notes:
(1) At 0:00, the time of opening a long position, the settlement price equals the entry price (2000 USDT).
(2) At 04:00, the time of adding 1 ETH to the position, the settlement price is updated to the new average entry price (2150 USDT), and unrealized PNL is +300 USDT.
(3) At 08:00, at the time of settlement, the market price increases to 2300 USDT. The system converts +300 USDT unrealized PNL into realized PNL, resets unrealized PNL to zero, and updates the settlement price to 2300 USDT.
(4) At 12:00, as the market price rises to 2600 USDT, adding another 1 ETH updates the settlement price to 2400 USDT. The new unrealized PNL is +600 USDT, while the realized PNL remains +300 USDT.
(5) Total PNL is estimated using mark price by default.
Certain Factors Affecting Settlement Price
1. Auto-Settlement
The settlement price depends on the auto settlement feature, with price updates occurring during position opening, position calls, and settlement periods.
(1) When disabled:
Settlement Price = Average Opening Price (shows PNL only on paper, with fund size unchanged; updates only occur when adding to positions).
(2) When enabled:
The settlement price updates as the trader adds to the position or at settlement times, converting floating PNL into realized PNL and using mark price to update the settlement baseline.
(3) Enabled after opening the position and disabled later:
After opening a position, if you enable Pyramiding Auto-Settlement, the settlement will still be conducted when it's enabled. As soon as it’s disabled, the settlement price will be updated to the last settlement price when the next settlement occurs.
🔗Learn more: Introduction to Futures Pyramiding Auto-Settlement >>
2. Funding rate
Although the funding rate does not directly change the settlement price, it can indirectly maintain the stability of the settlement price (mark price) by adjusting the contract trading price, ensuring it remains close to the spot index.
🔗Learn more: Introduction to Futures Funding Fees >>
Risk Reminder
The settlement price is based on real-time market prices. If the price of the underlying asset (such as BTC or ETH) experiences significant short-term fluctuations, it may lead to unexpected changes in unrealized profits and losses or even liquidation. Please reduce leverage and set stop-loss and take-profit levels in a timely manner.