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How to calculate BigONE contract rate
To calculate the contract rate on BigONE, use the formula: Contract rate = Mark price + (funding fee rate * funding term).
Dec 02, 2024 at 03:20 am
How to calculate BigONE contract rate?
The contract rate calculation method is: Contract rate=Mark price+funding fee rate*funding term
Step1: Get the Mark Price
BigONE contract uses the index price (Index Price) provided by third-party institutions such as Binance, Huobi and OKEx as the Benchmark Index.
BigONE will guarantee the accuracy of Contract Price by checking whether Mark Price is close to the last transaction price of the benchmark index, if it is not close the Mark Price will be adjusted by the Oracle.
Users can view the deviation rate of Mark Price by hovering over the Mark Price, as shown in the figure below:
[Image of Contract market page showing the Mark Price deviation rate]
Step2: Understand Funding Rate
a. Definition: Funding rate is a fee mechanism, which is paid by one party to the other to maintain the peg between the perpetual contract and the spot price. If the perpetual contract price is higher than spot price, the longs need to pay the shorts funding fees, in order to induce longs to close their positions or shorts to open their positions. The fee is vice versa if the perpetual contract price is lower than spot price.
b. Calculation method:
Funding fee rate=(Composite index funding rate - BigONE funding rate premium)*Future contract yield weight.
(1) Composite index funding rate= Sum of 24H funding rates of last 8 hours from Huobi, Binance and OKEX (_the 8-hour funding rates will be cleared and recalculated each day_) / 3
(2) BigONE funding rate premium= Premium set by the BigONE platform to limit market manipulation by large traders. The premium will be adjusted according to market conditions.
Step3: Understand Future contract yield weight
The weight is determined based on the time decay of future contracts. When future contract's expiration time is closer, the weight is larger, which has less impact on the funding rate. In order to prevent the manipulation of funding rate or Mark Price in the last few days before the expiration of contract, the platform will gradually reduce the weight .
Future contract yield weight table:
| Time to expiration time distance | Weight |
|---|---|
| 8-15 days | 50% |
| 4-7 days | 75% |
| 2-3 days | 90% |
| 1 day | 100% |
Step4: Understand Funding term
a. Funding time: Calculated every 8 hours, at 00:00, 08:00 and 16:00 (UTC time) respectively. The funding fee is settled half an hour after each funding time, which is 00:30, 08:30 and 16:30 (UTC time) .
b. Funding term: The period from the current funding time to the next funding time.
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