Funding rates are a unique type of fee that only applies to perpetual swaps or perpetual contract products. Unlike futures, there is no expiry delivery date for perpetual contracts. So, exchanges implement a price anchoring system through funding rates. This mechanism balances the short and long positions of perpetual swaps by either incentivizing or disincentivizing trades.
For example, a BTCUSDT-P Perpetual Contract would need to track the main index price of BTC/USD in the spot market.
When Will The funding Fee be charged?
- Funding fees are charged every 8 hours after the settlement of the contract every day.
- The funding rate is calculated once every minute but the funding fees will be charged at 4:00, 12:00 and 20:00 (GMT+8 Singapore Time).
Note: Users are only required to pay or receive funding fees when holding a position at that moment. If the position is closed before the fee is charged, no funding fee will be charged.
Why is Funding Fee Important?
Funding fee is important for mainly 3 reasons.
1) Know if you are paying a fee, or receiving a rebate.
Funding rates are meant to work against popular trades. Funding rates are paid from short traders to long traders or vice versa. The exchange does not take a cut.
- If funding rates are positive…
There are more long positions than short positions. Longs pay shorts.
Long positions receive a rebate while shorts pay a fee.
- If funding rates are negative…
There are more short positions than long positions. Shorts pay longs.
Short positions receive a rebate while longs pay a fee.
In other words:
if perpetual_swap_price > underlying_price = funding_rate is positive
if perpetual_swap_price < underlying_price = funding_rate is negative
2) A Safer Trading Environment & Lowered Risk for Bitflex Traders
- Crypto funding rates ensure that there is no long-term divergence in the price of both markets by making sure it is recalculated numerous times a day. Funding rates with a poor design can make trading perpetual contracts high risk for the trader.
- At Bitflex, we’ve designed a funding rate to reduce risk and minimize volatility & trading costs with our calculations. (Read ‘What determines Funding Rates?’)
3) Functions as a Sentiment Indicator for Bitflex Traders
The funding rate can serve as a sentiment indicator of sorts. When it is high, there is a high interest in long trades on leverage, whereas a low or even negative funding rate shows that the short is quite crowded.
Your expectation of price moves relative to funding rates could help you in your trading strategies but that is completely up to you.
How is Funding Fee Deducted?
The platform does not charge any funding fees; funding fees are solely transferred between users. Here is how funding rates are calculated on our platform.
Funding fee = position value * funding rate
Estimated funding rate = Clamp(MA(((Contract buy price + contract sell price) / 2 - spot index price) / spot index price - Interest), a, b)
*Interest is currently 0
*Perpetual contract: a and b are the maximum upper limit and minimum lower limit (tentatively +/- 0.0030), MA represents the moving average
The funding rate is calculated once every minute, and the funding rate calculated at 04:00, 12:00 and 20:00 Singapore time will be used to charge the funding when the funding is charged.
Theoretical Funding Rate vs Actual Funding Rate
- There might be a slight disparity in the actual funding rate being charged. Here’s why.
- When the funding fee is charged, it will be charged from the user's position margin first.
- If the position margin balance is insufficient, it will be charged at most until the user's margin rate is equal to the maintenance margin rate. Then, the remaining portion will be deducted from the user's account available margin.
- Suppose a trader buys 100 BTCUSDT-P contracts (long) at $10,000 at 8:00 Singapore time.
- At 12:00, the trader still holds the position, and the latest transaction price of BTC has changed to $10,024 USDT/BTC?
- Then the position value is no longer 100 USDT. Now it is 10024*100*0.0001 = 100.24 USDT.
- Assume that the funding rate at that time was 0.025%.
- Then, the user will pay the position value* funding rate
Position value = 100.24 USDT
Funding rate = 0.025%
Actual Funding Fee = 0.02506 USDT.
Accessing Real-Time Funding Rates
You can access real time funding rates by clicking the Trade tab. In the trade tab, select the perpetual contract you want to trade. Once you have selected your desired contract, you can find the real time funding rate under the funding rate tab right next to index.
Accessing Historical Funding Rates
You can access the historical funding rate list by clicking the following link