The funding rate is a fee rate to maintain the balance between the contract price and the price and the underlying assets price, typically applied to perpetual contracts. It serves as a mechanism for fund transfers between long and short traders. This fee is not collected by the exchange but is used to adjust the cost or profit of holding contracts, ensuring that the contract price remains close to the underlying assets price.
Funding is settled periodically to align the contract price and the spot price. The direction of fund transfers between long and short positions is determined by whether the funding rate is positive or negative - when the perpetual contract price deviates from the price of the underlying assets, the exchange will adjust the funding rate to make longs or shorts pay funds to each other, bringing the contract price back to the underlying assets price.
When the market trend is bullish, the funding rate is usually positive and increases over time. In this case, longs pay shorts. Conversely, when the market is bearish, the funding rate is typically negative, and shorts pay longs. If the funding rate is 0.00%, no funding needs to be settled between longs and shorts.
Funding Calculation
Funding = Nominal Position Value x Funding Rate
Nominal Position Value = Mark Price x Contract Size (For USDT Perp)
The funding rate is settled every 8 hours (at 00:00, 08:00, and 16:00 UTC+8) at settlement time.