TL;DR
An in-depth look at Bybit’s derivatives market, covering how to trade futures, options, and perpetual contracts with effective strategies and tools to make the most of your trading potential.
According to CoinMarketCap, Bybit is the world’s second largest exchange, when ranked by derivative 24h trading volume. Traders like Bybit derivatives, because there’s so many options in terms of products, cryptos, and leverage. But, derivatives are a different kind of beast.
However, if you’ve already started with Bybit, you’ve traded the spot markets, and now you’re ready to level up your game, then this guide is for you.
Bybit’s Futures, Options, and Perpetuals Course 101 is now in session!
WTF are Derivatives?
Futures, options, and perpetuals are classified as “derivatives”, or derivative contracts. Let’s step back and understand what is a derivative.
Simply put, a derivative is a contract (i.e. an agreement) between two parties, and the value of the contract depends on the price of some underlying asset. Now, derivatives can be settled with the underlying asset; but in the crypto markets, most are settled in stablecoins (i.e. no actual crypto asset is ever traded). Therefore, most derivatives are nothing more than bets between parties with regards to the price movements of particular assets.
Due to their nature, derivatives are mostly used to increase potential profits (i.e. leverage) or to hedge risk. We’ll discuss these techniques in a coming “Advanced Trading Strategies on Bybit” article. But for now, let’s get comfortable with the basics, and how they work on Bybit.
Futures
A futures contract is an agreement to buy or sell a particular asset, at a pre-determined price (i.e. the contract price), at a specific future time (i.e. the expiration date). A futures contract must close by the expiration date; however, buyers and sellers can sell off their contracts to other parties at any time before the expiration date.
| Buyer | Alice buys 1 BTC | |
| Seller | Bob sells 1 BTC | |
| Bitcoin’s Current Price | $60K | |
| Contract Price | $62K | |
| Expiration Date | 1 Month | |
| Bitcoin’s Price at Expiration | $65K | $58K |
| Outcome for Buyer | Alice profits $3K ($65K – $62K) | Alice loses $4K ($58K – $62K) |
| Outcome for Seller | Bob losses $3K ($62K – $65K) | Bob profits $4K ($62K – $58K) |
In the example above, Alice is betting that bitcoin’s price will be higher than $62K by the expiration date. If bitcoin is higher than $62K by this date, that’s Alice’s profit. If it’s lower, that’s her loss. The same applies for Bob, but in reverse.
Futures on Bybit
Bybit offers Bitcoin, Ethereum, and Solana futures, settled in USDC or in the underlying crypto (i.e. the latter are called “inverse” futures contracts).
The image below shows an example of Bybit’s futures trading desk. Let’s look at the important aspects.
(1) shows that I’ve selected a bitcoin futures contract, with an expiration date of March 28, 2025. (2) shows the “Index” price, which is bitcoin’s current spot price. (3) shows the current market price for the contract. And (4) shows the “Mark” price (i.e. for futures, all you need to know is that the Mark price is what’s used to trigger any potential liquidations).
At the time this image was captured (i.e. Q4 2024), this contract was trading for $62,990, while bitcoin’s market price was $60,882. Therefore, contract buyers are betting that bitcoin will be trading higher than $62,990 by the expiration date, while sellers are betting that price will be lower than this number.
Options
Options give the buyer (i.e. the “holder”) the right – but not the obligation – to buy or sell a particular asset, at a specific price, within a certain time period. The holder always pays the other party a “premium”, in exchange for the option to exercise the contract. The agreed upon, specific price is called the “strike price”.
There are two types of options: “calls” and “puts”. Calls give the holder the option to buy the asset, and puts give the holder the option to sell the asset. Basically, calls are long bets, and puts are short bets.
| Option Holder | Alice buys the option (i.e. a call) to purchase 1 BTC from Bob. | |
| Option Seller | Bob sells this option to Alice in exchange for the premium. | |
| Premium | $1,500 | |
| Bitcoin’s Current Price | $60K | |
| Strike Price | $62K | |
| Expiration Date | 1 Month | |
| Bitcoin’s Price at Expiration | $65K | $58K |
| Outcome for Holder | Alice will exercise her option to purchase the bitcoin because it results in a $1.5K profit. ($65K – $62K – $1.5K) | Alice will decline to exercise her option. Her loss is her paid premium (i.e. $1.5K). |
| Outcome for Seller | Bob losses $1.5K ($62K – $65K + $1.5K) | Bob profits $1.5K |
Notice how options give the holder unlimited upside with only limited downside. In our example, bitcoin’s price could have gone much higher than $65K. This would have resulted in more profits for Alice. However, Alice’s risk was always capped at her premium, because she is never forced to settle the contract (i.e. in the event that bitcoin’s price goes the wrong way).
Options on Bybit
Bybit offers Bitcoin, Ethereum, and Solana options. All are settled in USDC (i.e. there’s no actual crypto being traded).
Bybit’s options are “European-style”, meaning the holder can only exercise the option upon expiration, and not before. However, a holder can still sell their contract before expiration, but then their profit or loss purely depends on whether the premium they receive when selling the contract is larger or smaller than the premium that they paid when they bought the contract.
The image below shows an example of Bybit’s options trading desk. Let’s go over some of its key aspects.
(1) shows that I’ve selected bitcoin options with an (2) October 25, 2024 expiration date. (3) shows the calls running down the left side, and the puts running down the right side. (4) shows the strike prices running down the middle. (5) shows the “Mark Prices”, which in options is the premium cost for each strike price.
Let’s focus in on the bitcoin call, with a strike price of $63K. For this contract, a potential holder will need to pay a premium of $2,210. Given that bitcoin’s spot market price is $61,546, purchasing this contract immediately results in the holder having a potential unrealized loss of $756 ($61,546 + $2,210 – $63,000). However, given that the holder has 20 days until he can exercise the option (or he can sell the contract early if the premium trade becomes profitable), there’s a decent chance that he can make some money here.
To put it another way, at minimum, the holder wants to see the spot price of bitcoin higher than $63,756 at some point within or at the end of the option period, in order to make money.
Understanding Delta
We need to discuss options (6) “delta”. Now, if you’re going to get into options, you’ll want to study this further, along with the other “greeks”. But this will get you started.
Simply put, delta shows how much the premium will change (i.e. in percentage terms) relative to how much the asset’s underlying value changes. Calls always have deltas between 0.01 to 0.99, and puts are always between -0.01 to -0.99.
In our example, the $63K contract, with a $2,210 premium, has a delta of 0.44. So, this premium will move by 44% relative to bitcoin’s market price moves. If bitcoin’s spot price goes from $61,546 to $62,000. That $454 move times 0.44 equals $199. Therefore, the premium would now cost $2,409. This is important to consider when thinking about selling the contract early for a premium trade.
However, deltas change as the underlying price changes. Finally, the delta percentage also represents the current market odds that the asset’s underlying price will be higher than the strike price by the expiration date. So back to our example, a 0.44 delta means the market currently believes that there’s a 44% chance that bitcoin’s price will be higher than $63K by October 25th.
Interesting read: Our Ultimate Review of Bybit
Perpetuals
Perpetuals are agreements to buy or sell assets, for a particular price (i.e. contract price), but with no expiration date. Basically, perpetuals are futures with no expiration (i.e. they run in “perpetuity”). So, a perpetual can be closed at any time, but the trader’s profit or loss depends on whether the contract is profitable or not when it’s closed.
When it comes to crypto derivatives, most of the action happens in the perpetuals space. Now, you’ll notice that perpetual contract prices generally trade very close to spot prices.
So the question then becomes: why do traders even mess with perpetuals? One word: leverage.
Perpetuals on Bybit
Bybit offers perpetuals on hundreds of crypto assets, settled in USDC, USDT, or in the underlying crypto (i.e. inverse perpetuals).
The image below shows an example of Bybit’s perpetuals trading desk. Let’s go over some of the important aspects.
(1) shows that I’ve selected the bitcoin perpetual contract, settled in USDC. (2) shows the underlying “Index” price. (3) shows the current contract price. And (4) shows the “mark” price. Because of market dynamics, all three of these prices will generally stay very close to each other. The mark price is what’s used to trigger liquidations, and that’s because the mark price is derived from the index price plus the (5) funding rate.
Understanding the Funding Rate
The funding rate is important. This rate is used to calculate the funding fee, the latter of which is exchanged between longs and shorts every 8 hours. The funding fee’s purpose is to keep the contract price relatively pegged to the index price.
If the funding rate is positive, then longs pay shorts. If it’s negative, then shorts pay longs. A positive funding rate occurs when the contract price is above the spot price. And a negative rate happens in the opposite situation. Generally speaking, the funding rate is a gauge of bullish or bearish sentiment for the spot price of the particular asset. The further the funding rate is from baseline (i.e. 0.00%), the harder the sentiment.
The funding fee is calculated by the multiplying the dollar value of your position times the funding rate. So in the above example, assuming you are longing bitcoin with a position value of $61,471, then you will pay the shorts $6.14 at the end of the eight hour period. That’s because the current funding rate is 0.01% (i.e. $61,471 x 0.0001).
We are emphasizing the funding rate and fee here because they’re often over-looked. The funding fee can eat into your profits or magnify your losses, especially if you’re keeping your contract open for extended periods of time. So keep an eye on this.
Mastering Trading Course – by Lark Davis
Want to take your trading skills on Bybit up a notch? Check out the Mastering Trading Course, created by Lark Davis himself. Inside, you’ll find practical, step-by-step guidance on reading market signals and using technical analysis tools. Plus, there’s a dedicated module on how to get the most out of Bybit—perfect for anyone aiming to become a confident, skilled trader on the platform. Whether you’re new to trading or looking to sharpen your strategies, this course has everything you need to trade smarter and with real confidence.
Closing Thoughts
If you read through this article, then you now have a basic understanding of futures, options, and perpetuals, and how to approach them on Bybit. However, these products are complicated (especially options), and this is not a comprehensive guide. So, we encourage you to find one derivative type that peaks your interest, and then study it further. And as always, keep your leverage low, and use stop losses.
Finally, keep you eyes peeled to larkdavis.org because “Advanced Trading Strategies on Bybit” will be dropping soon!
ps. we compared Bybit vs Coinbase and Bybit vs Binance, might be interesting to give that a read too.
David learned about bitcoin in 2015 and has closely followed the crypto industry since then. His professional interests center around bitcoin, layer-one blockchain protocols, decentralized finance, and clean energy. An attorney by trade, David has held licenses to practice law in the State of Hawaii and in US federal courts.
