What is the Funding Rate Mechanism?
To ensure that perpetual futures prices reflect underlying market movements, exchanges implement a funding fee mechanism. This mechanism facilitates regular cash flow exchanges between long and short position holders, aligning the perpetual futures price with the index price.
- If the funding rate is positive, long position holders pay funding fees to short position holders.
- If the funding rate is negative, short position holders pay funding fees to long position holders.
Note: Coinstore only facilitates the funding fee exchange between long and short position holders. The platform does not charge any service fees.
Typically, Coinstore settles funding every 8 hours at 00:00, 08:00, and 16:00 (UTC). For some contracts, funding may be settled every 2 or 4 hours. Settlement times may also be adjusted in real time according to market conditions.
Funding Rate Calculation
Formula: Funding Rate (F) = Clamp([Premium Index (P) + Clamp (Interest Rate (I) – Premium Index (P), -0.05%, 0.05%)], Funding Rate Floor, Funding Rate Cap)
The funding rate consists of two components: Interest Rate (I) and Premium Index (P).
Coinstore calculates the interest rate (I) and the premium index (P) per minute, then takes a time-weighted average over each funding interval (N hours). The closer to settlement, the higher the weighting.
Example (8-hour funding interval):
Average Premium Index (P) = (Premium Index₁ × 1 + Premium Index₂ × 2 + … + Premium Index₄₈₀ × 480) ÷ (1 + 2 + … + 480)
Each hour = 60 minutes
8 hours = 480 minutes
Coefficients = 1, 2, …, 480 (arithmetic progression, common difference 1)
Thus, the funding rate is calculated from the interest rate and premium/discount, with a ±0.05% buffer.
N = funding interval (hours)
Example: 8-hour settlement → N = 8; 1-hour settlement → N = 1
If (I – P) lies within ±0.05%, then F = P + (I – P) = I, meaning the funding rate equals the interest rate.
Interest Rate (I)
Formula: Interest Rate (I) = (0.03%) ÷ Funding Interval
Funding Interval = 24 ÷ Settlement Period
Example: BTCUSDT perpetual futures with an 8-hour funding interval
Funding Interval = 24 ÷ 8 = 3
Interest Rate = 0.03% ÷ 3 = 0.01%
Funding Rate Limits
- Funding Rate Cap = 0.75 × (0.01 ~ 2) × Maintenance Margin Ratio
- Funding Rate Floor = -0.75 × (0.01 ~ 2) × Maintenance Margin Ratio
- Default coefficient = 0.75
The funding rate cap is calculated based on the maintenance margin ratio at maximum leverage.
Premium Index (P)
When the perpetual futures price trades at a significant premium or discount relative to the mark price, the premium index adjusts the next funding rate to better reflect current market conditions.
Formula:
Premium Index (P) = [Max(0, Impact Bid Price – Index Price) – Max(0, Index Price – Impact Ask Price)] ÷ Index Price
- Impact Bid Price: Average buy price when the order book reaches the “Impact Margin Notional” threshold
- Impact Ask Price: Average sell price when the order book reaches the “Impact Margin Notional” threshold
- Impact Margin Notional: The notional value of contracts that can be opened with a fixed margin value, used to calculate impact bid/ask prices and order book depth
Example: If BTCUSDT has a minimum maintenance margin ratio of 0.5%,
Impact Margin Notional = 200 ÷ 0.5% = 40,000 USDT
Funding Fee Calculation
Funding Fee = Position Value × Funding Rate = Contract Quantity × Mark Price × Funding Rate
Note: At settlement, the system calculates funding fees based on position value. Settlement follows a pay first, distribute later approach. If the payer is liquidated or has insufficient margin in isolated mode, the receiver’s collected amount may be reduced.
Example
A client holds 10 BTC contracts in a long position.
- Mark Price = 10,000 USDT
- Current Funding Rate = 0.01%
Step 1: Position Value = 10 × 10,000 = 100,000 USDT
Step 2: Funding Fee = 100,000 × 0.01% = 10 USDT
Since the funding rate is positive (0.01%), the long position holder must pay funding fees to the short position holder.
Therefore, the client pays 10 USDT, while the short position holder with the same number of contracts receives 10 USDT.
Disclaimer: This information does not provide advice on investment, taxation, legal, financial, accounting, consultancy, or any other related services, nor is it advice to purchase, sell, or hold any assets. The Coinstore Learn provides information for reference purposes only and does not constitute any investment advice. Please ensure a thorough understanding of the risks involved and invest cautiously. All user investment activities are unrelated to this platform.