💲Funding Rates
At the delivery date of a futures contract, the Market Price of the contract will revert to the Index Price. However, Perpetual contracts do not have an expiration or delivery date, so a "Funding Fee Mechanism" is employed to anchor the Contract Price to the Spot Price.
Funding Fee Collection
The determination of whether a user should pay or receive a Funding Fee at settlement depends on the Funding Rate for that period and the user's Position status. When the Funding Rate is positive, Long positions pay the Funding Fee, and Short positions receive it. Conversely, when the Funding Rate is negative, Long positions receive the Funding Fee, and Short positions pay it.
Funding Fees are settled entirely between users, and the platform does not charge any fees.
Funding Fee Calculation
The Funding Fee is calculated as follows:
Funding Fee = Position Value × Funding Rate
Where:
Position Value = Number of Contracts × Contract Quantity × Mark Price
Funding Rate Calculation
The Funding Rate is designed to ensure that the Trading price of Perpetual contracts closely follows the reference price of the underlying asset. The Funding Rate for each period is calculated based on data from the previous period and is determined at the start of the current period, remaining unchanged throughout that period. This rate will be applied for the settlement of the Funding Fees at the end of the current period. Additionally, the predicted Funding Rate for the next period is calculated every minute, and the last calculated predicted Funding Rate will serve as the Funding Rate for the next period.
For example, the Funding Rate for the period from 08:00 to 09:00 is derived from the previous period’s data (07:00 to 08:00) and is finalised at 08:00. During the 07:00 to 08:00 period, a predicted Funding Rate is calculated every minute for the subsequent period, and the last calculated predicted Funding Rate will determine the Funding Rate for that next period.
Components of the Funding Rate
Comprehensive Interest Rate: Perpetual contracts consist of two currencies: the Underlying currency and the Quote currency. For instance, in the BTC-USDT perpetual contract, BTC is the underlying currency, while USDT is the quote currency.
Underlying Currency Interest Rate: The daily borrowing rate for the underlying currency in the market. For the BTC-USDT contract, this would be the daily borrowing rate for BTC.
Quote Currency Interest Rate: The daily borrowing rate for the quote currency in the market. For the BTC-USDT contract, this would be the daily borrowing rate for USDT.
The comprehensive interest rate is calculated as follows:
Comprehensive Interest Rate =
(Quote Currency Rate−Underlying Currency Rate) / Funding Rate Settlement Frequency
Premium: Perpetual contracts may trade at a premium or discount relative to their fair price. The premium index measures the level of this premium and is included in the Funding Rate calculation. A higher premium results in a larger Funding Rate, incentivizing shorts to enter positions. Conversely, a lower premium leads to a smaller Funding Rate, encouraging longs to take positions. Adjusting the Funding Rate can help the contract price revert to a more reasonable level.
Last updated