Funding Rate

Overview

The funding rate is a mechanism used in perpetual contracts to keep their prices aligned with the spot market. Unlike traditional futures contracts, which converge to the spot price at expiration, perpetual contracts have no expiration or delivery. Instead, they use the funding rate to maintain price anchoring.

Funding Fee Settlement Rules

• Funding is settled every 8 hours:

  • 00:00 GMT+8

  • 08:00 GMT+8

  • 16:00 GMT+8

• Only traders holding a position at the time of settlement are subject to funding fees.

• Funding direction:

  • If the funding rate F > 0: Longs pay funding fees, and Shorts receive

  • If the funding rate F < 0: Shorts pay funding fees, Longs receive

The platform does not charge any funding fees. All fees are peer-to-peer.

Funding Fee Calculation

$$\text{Funding Fee} = \text{Position Value} \times \text{Funding Rate}$$

$$\text{Position Value} = \text{Position Size} \times \text{Contract Size} \times \text{Mark Price}$$

Funding Rate Components

1. Composite Rate

For a contract pair (e.g., BTC/USDT):

• Underlying asset: BTC

• Quote asset: USDT

$$\text{Composite Rate} = \frac{r_q - r_u}{N}$$

Where:

• r_q​: Quote currency interest rate

• r_u​: Underlying currency interest rate

• N: Number of funding settlements per day

Example:

$$r_q = 0.06\%, \quad r_u = 0.03\%, \quad N = 3$$

$$\text{Composite Rate} = \frac{0.06\% - 0.03\%}{3} = 0.01\%$$

2. Funding Rate Basis Rate

This reflects the decay of the funding impact over the settlement cycle:

$$\text{Basis Rate} = F \times \left( \frac{t}{T} \right)$$

Where:

• F: Funding rate of the current period

• t: Time remaining until next settlement (in minutes)

• T: Total duration of the funding cycle (480 minutes)

Example:

$$F = 0.01\%, \quad t = 450, \quad T = 480$$

$$\text{Basis Rate} = 0.01\% \times \left( \frac{450}{480} \right) = 0.009375\%$$

3. Reasonable Price

$$\text{Reasonable Price} = P_{\text{index}} \times (1 + \text{Basis Rate})$$

Example:

$$P_{\text{index}} = 10,000, \quad \text{Basis Rate} = 0.005\%$$

$$\text{Reasonable Price} = 10,000 \times (1 + 0.00005) = 10,000.5$$

Depth-Weighted Prices

Let:

• P_b​: Depth-weighted bid price (buy orders)

• P_a​: Depth-weighted ask price (sell orders)

• P_r​: Reasonable price

Premium Index Calculation

$$\text{Premium Index} = \frac{\max(0, P_b - P_r) - \max(0, P_r - P_a)}{P_{\text{index}}} + \text{Basis Rate}$$

Cases:

1. If P_a ≥ P_r ≥ P_b​, then:

Premium Index=Basis Rate\text{Premium Index} = \text{Basis Rate}Premium Index=Basis Rate

$$\text{Premium Index} = \text{Basis Rate}$$

1. If P_b > P_r​, then:

$$\text{Premium Index} = \frac{P_b - P_r}{P_{\text{index}}} + \text{Basis Rate}$$

1. If P_r > P_a​, then:

$$\text{Premium Index} = \frac{P_a - P_r}{P_{\text{index}}} + \text{Basis Rate}$$

Average Premium Index

The average premium index at time ttt is the arithmetic mean of all premium index values from t - 60 minutes to t.

Final Funding Rate Formula

The final funding rate is constrained within predefined bounds:

$$F = \text{clamp} \left( \text{AvgPremium} + \text{clamp}(C - \text{AvgPremium}, D_{\text{max}}, D_{\text{min}}), F_{\text{max}}, F_{\text{min}} \right)$$

Where:

• F: Final funding rate

• C: Composite rate

• D_max, D_min​: Premium deviation bounds

• F_max, F_min: Funding rate bounds

Clamp Function:

$$\text{clamp}(x, \text{max}, \text{min}) = \begin{cases} \text{max}, & \text{if } x > \text{max} \\ \text{min}, & \text{if } x < \text{min} \\ x, & \text{otherwise} \end{cases}$$