Understanding the Settlement Cycle
USDC Perpetual Contracts and USDC Futures Contracts undergo settlement every 8 hours at the following UTC times:
- 12:00 AM (Midnight)
- 8:00 AM
- 4:00 PM
At each settlement point, the average entry price of open positions updates to the contract's mark price at that time. This mechanism ensures continuous alignment with market conditions while locking in gains or losses periodically.
How the 8-Hour Settlement Works: A Trader's Example
Scenario: Current Settlement Window (4:00 PM to 12:00 AM UTC)
Trader A holds the following positions in BTC-PERP:
- 0.1 BTC long, opened at $50,000
- Additional 0.1 BTC long, opened at $50,500
Calculating Average Entry Price:
$$ \text{Average Entry Price} = \frac{\text{Total Contract Value}}{\text{Total Quantity}} = \frac{(0.1 \times 50,000) + (0.1 \times 50,500)}{0.2} = \$50,250 $$
Partial Closing and P&L Calculation:
- Market Price Rises to $50,700
- Mark Price: $51,000
- Trader Closes 0.1 BTC Position
| P&L Type | Formula | Calculation | Result |
|---|---|---|---|
| Realized P&L | (Closing Price - Avg. Entry) × Quantity | (50,700 - 50,250) × 0.1 | 45 USDC |
| Unrealized P&L | (Mark Price - Avg. Entry) × Quantity | (51,000 - 50,250) × 0.1 | 75 USDC |
👉 Learn more about P&L calculations for USDC Contracts
Midnight (12:00 AM UTC) Settlement Process
At settlement, the mark price is $52,000.
Unrealized P&L for Current Cycle:
$$ (52,000 - 50,250) \times 0.1 = 175 \text{ USDC} $$
- $175 USDC credits to the trader's balance.
- New Average Entry Price updates to $52,000.
Subsequent gains/losses in the next cycle (12:00 AM – 8:00 AM UTC) will reference this updated price. Closing positions before the next settlement incurs trading fees based on the latest average entry.
Key Differences: USDC Futures Contracts
While sharing the same 8-hour settlement mechanism as perpetuals, USDC Futures have two distinctions:
- No Settlement Fees: If held until expiry without manual closing.
- Mandatory Delivery: Contracts auto-settle at expiry price.
👉 Explore USDC Futures settlement rules
FAQ Section
1. Why does the average entry price reset every 8 hours?
Settlement synchronizes contract values with mark prices, ensuring fairness and reducing discrepancies between traders' entry points and real-time markets.
2. Are funding charges applied in USDC Contracts?
No. Unlike inverse perpetuals, USDC contracts use an 8-hour settlement model instead of continuous funding fees.
3. How does this benefit traders?
- Locked-in profits become withdrawable immediately after each settlement.
- Reduced risk of liquidations due to abrupt mark price swings.
4. Can I opt out of settlements?
No. This is inherent to USDC margined contracts for risk management.
Summary
The 8-hour settlement mechanism provides transparency and periodic profit distribution while maintaining exposure. Traders should account for:
- Timing: Align trades with settlement windows to manage P&L.
- Fees: Closing positions mid-cycle incurs standard fees.
For advanced strategies, monitor mark prices near 12:00 AM, 8:00 AM, and 4:00 PM UTC to optimize entries/exits.