What is the Funding Rate?
The funding rate is a periodic fee exchanged between traders in perpetual Futures, designed to keep the futuret price in line with the spot price of the underlying asset. When the market is bullish, the funding rate is positive, and longposition traders pay a fee to shortposition traders. Conversely, when the market is bearish, the funding rate is negative, and shortposition traders pay a fee to longposition traders.
How is the Funding Rate Calculated?
The funding rate is calculated using the following formula:
Funding Amount=Nominal Position Value×Funding Rate
Where:
Nominal Position Value=Mark Price×Number of Contracts
It is important to note that exchanges do not charge any fees from the funding rate itself; the funds are directly transferred between users. Funding payments occur every 8 hours at 00:00 UTC, 08:00 UTC, and 16:00 UTC. Traders are required to pay or receive the funding fee only if they have an open position at the scheduled funding times. If a trader closes their position before the funding time, they neither pay nor receive any funding fee. There is a 15second margin of error for the actual funding payment time. For example, if a trader opens a position at 08:00:05 UTC, they will still be subject to the funding fee (either paying or receiving it).
Factors Determining the Funding Rate
The funding rate is determined by two factors: the interest rate and the premium. The premium helps align the perpetual future price with the underlying asset price.
The formula for the funding rate (F) is:
F=Average Premium Index(P)+Clamp(Interest Rate−Average Premium Index(P),0.05%,−0.05%)

Interest Rate: Exchanges use a fixed interest rate, assuming that holding equivalent cash earns more interest than holding an equivalent amount of BTC. The default interest rate difference is set at 0.03% per day (0.01% per 8hour funding interval). This rate can change according to market conditions, such as adjustments to the federal funds rate.

Premium: Significant differences can arise between the perpetual future and mark prices. The premium index is used to force the two prices to converge. It is calculated for each contract separately using the formula:
Premium Index(P)=[max(0, Impact Bid Price−Price Index)−max(0, Price Index−Impact Ask Price)]/Price Index
Where:

Impact Bid Price: The average price of executing a buy order with the impact margin amount (IMN).

Impact Ask Price: The average price of executing a sell order with the impact margin amount (IMN).

Price Index: A weighted average price index derived from a basket of major spot exchanges, based on their trading volumes.
For USDbased futures, the IMN is calculated with a margin amount of 200 USDT and is configured via the backend. For example, if the maximum leverage for a BTCUSDT perpetual future is 20x with an initial margin rate of 5%, the IMN is:
IMN=200 USDT/5%=4,000 USDT
The system measures the average impact bid/ask prices every minute using this IMN.
Funding Rate Limits
The funding rate has upper and lower limits, defined as follows:

Lower Limit: −0.75×Maintenance Margin Rate

Upper Limit: +0.75×Maintenance Margin Rate
The final funding rate is clamped within these limits:
Clamped Funding Rate=clamp(Funding Rate,Lower Limit,Upper Limit)
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