Understanding how funding rates work and their impact on perpetual contract trading
Funding rate is a mechanism used in perpetual contracts to keep the contract price close to the underlying spot price. It's a periodic payment between long and short position holders.
Long positions pay short positions. Indicates perpetual price is above spot price.
Short positions pay long positions. Indicates perpetual price is below spot price.
Funding payments occur at regular intervals to maintain price stability between perpetual and spot markets.
Important: You only pay or receive funding if you hold a position at the funding time. Positions opened and closed between funding intervals are not subject to funding payments.
The funding rate is calculated using a combination of interest rate and premium index components.
Fixed at 0.01% per 8-hour period (0.03% daily), representing the cost of holding the position.
Calculated as the time-weighted average of (Perpetual Price - Spot Price) / Spot Price over the funding period.
Your funding payment depends on your position size, the funding rate, and whether you're long or short.
Understanding funding rates can help you optimize your trading strategy and potentially earn additional returns.
Take advantage of consistently high funding rates by holding positions that receive payments.
Consider funding costs when planning position duration and entry/exit timing.