Funding Rate

The funding rate is a periodic payment exchanged between traders in perpetual futures markets to ensure the contract price aligns with the spot market price. Depending on whether the funding rate is positive or negative, payments flow from long to short traders or vice versa.

Funding Payment Formula:

F = (−1) × S × P × R

S: Position size (positive for long, negative for short)

P: Mark price of the asset (current fair price)

R: Funding rate (determined periodically based on market conditions)

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Process Overview

The funding rate mechanism ensures price stability between perpetual contracts and spot markets by incentivising traders to balance long and short positions. Rates are typically recalculated once an hour and reflect market dynamics like demand, supply, and interest rates.

Note: Traders should monitor funding rates closely, as frequent payments can significantly impact profitability, especially for high-leverage positions.

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Example:

Let us consider a scenario where the order value is $250 USDT and the current price of the selected asset - “APT-PERP”, is at US $7 per APT, then here’s how the funding rate would be calculated -

Given Parameters:

• Order Value: $250

• Mark Price (P): $7

• Position Size (S):

S = Order Value / Mark Price = 250 / 7 = 35.71 APT

• Funding Rate (R): Assume 0.02% (0.0002)

Funding Payment Calculation:

F = (−1) × S × P × R

F = (-1) × 35.71 × 7 × 0.0002

F = −0.05

Interpretation:

• If the funding rate is positive (0.02%), long traders pay 0.05 USDT to short traders.

• If the funding rate is negative, short traders pay long traders.

• Payments happen once every hour