Market Cap: $2.6663T -3.580%
Volume(24h): $74.8835B -17.110%
Fear & Greed Index:

33 - Fear

  • Market Cap: $2.6663T -3.580%
  • Volume(24h): $74.8835B -17.110%
  • Fear & Greed Index:
  • Market Cap: $2.6663T -3.580%
Cryptos
Topics
Cryptospedia
News
CryptosTopics
Videos
Top Cryptospedia

Select Language

Select Language

Select Currency

Cryptos
Topics
Cryptospedia
News
CryptosTopics
Videos

How is the funding fee of perpetual contract calculated?

When the funding rate is positive, traders holding long positions pay fees to those holding short positions to encourage shorting and bring the contract price closer to the spot price.

Oct 21, 2024 at 08:11 pm

Understanding Funding Fees in Perpetual Contracts

Perpetual contracts, also known as inverse futures, are a popular type of derivative in the cryptocurrency market. Unlike traditional futures contracts that have an expiry date, perpetual contracts remain open indefinitely. To align the prices of perpetual contracts with their underlying assets, funding fees are introduced as a mechanism to maintain price parity.

Perpetual Contract Funding Fees

Funding fees are paid or received by traders based on the difference between the perpetual contract price and the funding rate. The funding rate is typically calculated every 8 hours and adjusted to ensure that the contract price closely tracks the spot market.

Methodology for Calculating Funding Fees

Step 1: Determine Market Sentiment

The funding rate reflects the market's sentiment towards a particular asset. If there are more long positions (bets that the price will rise) than short positions (bets that the price will fall), the funding rate will be positive. Conversely, if there are more short positions, the funding rate will be negative.

Step 2: Set Funding Threshold

A positive funding rate encourages longs to close their positions or shorts to open their positions. Conversely, a negative funding rate discourages shorts from opening positions or encourages longs to close their positions.

Step 3: Funding Rate Calculation

The funding rate is typically set on an 8-hourly basis and calculated using the following formula:

Funding Rate = (Longs Interest Rate - Shorts Interest Rate) / 8

Longs Interest Rate: This rate is calculated based on the prevailing bid price and represents the borrowing cost for longs.

Shorts Interest Rate: This rate is calculated based on the prevailing ask price and represents the borrowing cost for shorts.

Step 4: Apply Funding Fees

The funding fee is applied to each trader's account based on their position size and the funding rate. Traders who hold long positions pay funding fees to traders who hold short positions. Conversely, traders who hold short positions receive funding fees from traders who hold long positions.

Example of Funding Fee Calculation

Let's say the perpetual contract price for Bitcoin (BTC) is $20,000, while the spot price is $19,980. This indicates that the perpetual contract price is slightly higher than the spot price.

Assuming the longs interest rate is 0.01% (0.0001) and the shorts interest rate is 0.002% (0.00002), the funding rate would be calculated as:

Funding Rate = (0.0001 - 0.00002) / 8 = 0.0000125

This positive funding rate encourages traders to open short positions and close long positions, potentially bringing the perpetual contract price closer to the spot price.

Disclaimer:info@kdj.com

The information provided is not trading advice. kdj.com does not assume any responsibility for any investments made based on the information provided in this article. Cryptocurrencies are highly volatile and it is highly recommended that you invest with caution after thorough research!

If you believe that the content used on this website infringes your copyright, please contact us immediately (info@kdj.com) and we will delete it promptly.

Related knowledge

how to find bitcoin contract address

how to find bitcoin contract address

Mar 22,2025 at 05:07pm

How to Find a Bitcoin Contract Address: A Deep DiveFinding a Bitcoin contract address requires understanding that Bitcoin itself doesn't inherently support smart contracts like Ethereum. The concept of a "contract address" is fundamentally tied to blockchain platforms with smart contract functionality. Therefore, searching for a Bitcoin contract address...

bitcoin smart contracts example

bitcoin smart contracts example

Mar 22,2025 at 05:35am

Bitcoin Smart Contracts: Example Use Cases and Technical LimitationsBitcoin, initially designed as a peer-to-peer electronic cash system, has limitations in supporting complex smart contracts like those found on Ethereum. While Bitcoin doesn't natively support Turing-complete smart contracts, several methods are being explored to enhance its functionali...

how to trade bitcoin futures in canada

how to trade bitcoin futures in canada

Mar 25,2025 at 06:29pm

How to Trade Bitcoin Futures in CanadaTrading Bitcoin futures in Canada offers a unique set of opportunities and challenges for investors. This guide explores the process, regulatory landscape, and considerations for Canadian residents looking to participate in this market. It's crucial to understand the risks involved before engaging in any futures tra...

how to trade bitcoin futures on binance

how to trade bitcoin futures on binance

Mar 26,2025 at 05:29am

How to Trade Bitcoin Futures on BinanceBinance offers a robust platform for trading Bitcoin futures contracts, allowing traders to speculate on the future price of Bitcoin without directly owning the underlying asset. This guide details the process, covering account setup, contract specifics, and risk management. Understanding these aspects is crucial b...

how to trade bitcoin futures in india

how to trade bitcoin futures in india

Mar 26,2025 at 02:14am

How to Trade Bitcoin Futures in IndiaTrading Bitcoin futures in India presents unique challenges and opportunities. While India doesn't have a regulated Bitcoin futures exchange domestically, Indian residents can still access international exchanges that offer these contracts. Understanding the legal landscape and the mechanics of futures trading is cru...

how to trade bitcoin futures in us

how to trade bitcoin futures in us

Mar 24,2025 at 07:49pm

How to Trade Bitcoin Futures in the USTrading Bitcoin futures in the US offers a unique approach to Bitcoin investment, allowing traders to speculate on the future price of Bitcoin without directly owning the underlying asset. This opens doors for sophisticated trading strategies but also introduces significant risk. Understanding the process and associ...

how to find bitcoin contract address

how to find bitcoin contract address

Mar 22,2025 at 05:07pm

How to Find a Bitcoin Contract Address: A Deep DiveFinding a Bitcoin contract address requires understanding that Bitcoin itself doesn't inherently support smart contracts like Ethereum. The concept of a "contract address" is fundamentally tied to blockchain platforms with smart contract functionality. Therefore, searching for a Bitcoin contract address...

bitcoin smart contracts example

bitcoin smart contracts example

Mar 22,2025 at 05:35am

Bitcoin Smart Contracts: Example Use Cases and Technical LimitationsBitcoin, initially designed as a peer-to-peer electronic cash system, has limitations in supporting complex smart contracts like those found on Ethereum. While Bitcoin doesn't natively support Turing-complete smart contracts, several methods are being explored to enhance its functionali...

how to trade bitcoin futures in canada

how to trade bitcoin futures in canada

Mar 25,2025 at 06:29pm

How to Trade Bitcoin Futures in CanadaTrading Bitcoin futures in Canada offers a unique set of opportunities and challenges for investors. This guide explores the process, regulatory landscape, and considerations for Canadian residents looking to participate in this market. It's crucial to understand the risks involved before engaging in any futures tra...

how to trade bitcoin futures on binance

how to trade bitcoin futures on binance

Mar 26,2025 at 05:29am

How to Trade Bitcoin Futures on BinanceBinance offers a robust platform for trading Bitcoin futures contracts, allowing traders to speculate on the future price of Bitcoin without directly owning the underlying asset. This guide details the process, covering account setup, contract specifics, and risk management. Understanding these aspects is crucial b...

how to trade bitcoin futures in india

how to trade bitcoin futures in india

Mar 26,2025 at 02:14am

How to Trade Bitcoin Futures in IndiaTrading Bitcoin futures in India presents unique challenges and opportunities. While India doesn't have a regulated Bitcoin futures exchange domestically, Indian residents can still access international exchanges that offer these contracts. Understanding the legal landscape and the mechanics of futures trading is cru...

how to trade bitcoin futures in us

how to trade bitcoin futures in us

Mar 24,2025 at 07:49pm

How to Trade Bitcoin Futures in the USTrading Bitcoin futures in the US offers a unique approach to Bitcoin investment, allowing traders to speculate on the future price of Bitcoin without directly owning the underlying asset. This opens doors for sophisticated trading strategies but also introduces significant risk. Understanding the process and associ...

See all articles

User not found or password invalid

Your input is correct