Funding Rate
Calculation of Funding Rate (Platform Side):
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.
Funding Rate Formula
Funding Rate (R) = (Max(0, Impact Bid Price - Index Price) - Max(0, Index Price - Impact Ask Price)) / Index Price
The Impact Bid Price and Impact Ask Price are derived from the average execution prices of market orders for a specific "Impact Notional Amount." These values are designed to reflect the immediate liquidity and price impact of a trade of a certain size. Index Price is the oracle price
Impact Bid Price: The Impact Bid Price represents the average execution price for a market sell order of the Impact Notional Amount. This essentially simulates the price a large seller would receive when exiting their position.
Impact Ask Price: The Impact Ask Price represents the average execution price for a market buy order of the Impact Notional Amount. This simulates the price a large buyer would pay when entering a position.
Impact Notional Amount: The Impact Notional Amount is a standardized value used in the calculation of the Impact Bid and Ask Prices. It is defined as:
Impact Notional Amount = 500 USDC / Initial Margin Fraction
Initial margin fraction is the corresponding margin of the max leverage of a particular market. For e.g., in APT perps the max leverage that we offer is 20x, so corresponding margin is 5%.
Impact notional amount of APT market = 500/0.05 = $10,000
Funding Rate calculation frequency:
The Funding Rate (R) is calculated every minute. At the end of each hour, the average of these 60 minute-by-minute calculations is computed to determine the final Funding Rate (R) for that hour.
Funding Rate Application:
The hourly average is applied to all open positions, credited or debited based on long/short exposure. A 1% per-minute cap is enforced to prevent abusive funding events and if any minute's funding exceeds this threshold, it is clamped to 0.
Calculation of Funding Payment (User side):
The funding payment 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)
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
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