The funding fee mechanism is a core component of perpetual swap contracts, designed to ensure their trading price closely tracks the underlying spot market index. This system facilitates regular cash flow exchanges between long and short position holders, effectively tethering the contract's price to its index price.
When the funding rate is positive, traders holding long positions pay funding fees to those holding short positions. Conversely, a negative funding rate means short position holders pay funding fees to long position holders. It is important to note that the platform merely facilitates this transfer between users and does not collect any service fee from these payments.
How Funding Fee Timings Work
Typically, funding fees are exchanged every eight hours at 00:00, 08:00, and 16:00 (UTC+8). However, some specific contracts may settle fees at different intervals, such as every 1, 2, or 4 hours. The process is executed at a millisecond level, ensuring no interruption to ongoing trading activities.
Only traders who hold open positions at the exact moment of the funding fee calculation are obligated to pay or receive the fee. If you close your position before the snapshot is taken, you will neither pay nor receive a funding fee. Furthermore, if a perpetual contract is delisted before a scheduled funding interval, that period's fee is canceled and will not be collected or distributed. The actual calculation window can last up to one minute. For instance, if a trader opens a position at 00:00:20 (UTC+8) and the funding calculation is still ongoing, they may still be liable for that period's funding fee.
Please be aware that these timing schedules are subject to change based on real-time market conditions.
Calculating the Funding Rate
Original Funding Rate Calculation Logic
The original formula was:Funding Rate = Clamp [MA (Premium Index – Interest Rate), Funding Rate Cap, Funding Rate Floor]
- Interest Rate: Was set to 0.
- Premium Index: Calculated as
[(Best Bid + Best Ask) / 2 – Index Price] / Index Price. - MA (Moving Average): A simple moving average of the premium index, calculated every minute using data from the past 8 hours.
- The funding rate was calculated每分钟 and the most recent rate was used for settlement.
New Funding Rate Calculation Logic
To provide a more professional trading experience, the platform has rolled out an updated calculation formula. The new logic is implemented in batches across different perpetual contracts.
The new formula is:Funding Rate = clamp [Average Premium Index + clamp (Interest Rate – Average Premium Index, 0.05%, -0.05%), Funding Rate Cap, Funding Rate Floor]
- Interest Rate: Now dynamic.
Interest Rate = 0.03% / (24 / Funding Interval). For example, a BTCUSDT contract with an 8-hour interval has an interest rate of 0.01%. - Premium Index: Now uses depth-weighted data:
[max (0, Depth Weighted Bid Price - Index Price) – max (0, Index Price – Depth Weighted Ask Price)] / Index Price. - Average Premium Index: Uses a weighted average of the premium index values from the start of the current funding period up to the present minute.
- The funding rate is still calculated每分钟, with the latest value used for settlement.
Understanding Depth-Weighted Price
The depth-weighted bid/ask price is the average execution price to fill an order of a specific "Depth Weighted Amount."
- Depth Weighted Amount = 200 × the contract's maximum leverage multiplier.
- Depth Weighted Bid (or Ask) Price = Depth Weighted Amount / Quantity of coins needed to fill it.
Example: Calculating BTCUSDT Depth-Weighted Bid Price
Assume the Depth Weighted Amount is 20,000 USDT.
| Order Book Level | Price (USDT) | Quantity (BTC) | Cumulative Value (USDT) | Cumulative Quantity (BTC) |
|---|---|---|---|---|
| 1 (Best Bid) | 90,000 | 0.02 | 1,800 | 0.02 |
| 2 | 89,900 | 0.06 | 1,800 + (89,900 * 0.06) = 7,194 | 0.08 |
| 3 | 89,700 | 0.16 | 7,194 + (89,700 * 0.16) = 21,546 | 0.24 |
The required amount (20,000 USDT) is not fully filled by Level 2 (7,194 USDT). We need 12,806 USDT more from Level 3.
The quantity needed from Level 3 is 12,806 / 89,700 ≈ 0.14276 BTC.
Depth Weighted Bid Price = Total Amount / Total Quantity = 20,000 / (0.02 + 0.06 + 0.14276) ≈ 89,780.8 USDT
Calculating Your Funding Fee Cost
The actual funding fee for your position is calculated as:
Funding Fee = Position Value × Funding Rate
The method for calculating position value differs between contract types.
For USDT-Margined Contracts
Position Value = Number of Contracts × Contract Face Value × Mark Price
Example:
You hold 10 long contracts of BTCUSDT.
- Mark Price = 60,000 USDT
- Contract Face Value = 0.01 BTC
- Funding Rate = 0.1%
Position Value = 10 × 0.01 × 60,000 = 6,000 USDT
Funding Fee (to pay) = 6,000 × 0.1% = 6 USDT
For Coin-Margined (Inverse) Contracts
Position Value = (Number of Contracts × Contract Face Value) / Mark Price
Example:
You hold 100 short contracts of ETHUSD.
- Mark Price = 4,000 USD
- Contract Face Value = 10 USD
- Funding Rate = 0.1%
Position Value = (100 × 10) / 4,000 = 0.25 ETH
Funding Fee (to receive) = 0.25 × 0.1% = 0.00025 ETH
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How Funding Fees Are Collected and Distributed
The platform's method for handling the transfer of fees depends on your margin mode.
| Scenario | Process |
|---|---|
| Paying a Funding Fee | The full fee is collected. This deduction can potentially trigger liquidation if it reduces your margin balance critically. Isolated Margin: Fee is deducted directly from the isolated position's margin. No open orders are canceled. Cross Margin: Fee is deducted from the available equity in your cross margin account. No open orders are canceled. |
| Receiving a Funding Fee | The full fee is distributed to you. Isolated Margin: Fee is credited directly to the isolated position's margin. Cross Margin: Fee is credited to the available equity in your cross margin account. |
Frequently Asked Questions
What is the purpose of a funding fee?
The funding fee mechanism ensures the price of a perpetual swap contract remains anchored to its underlying spot index. It incentivizes traders to push the market price toward the fair value when it deviates, creating a balanced market.
If I close my position right before funding time, do I still pay?
No. Funding fees are only charged to traders who hold an open position at the precise moment the funding snapshot is taken. If you close your position before this event, you will avoid the fee for that period.
Can I earn money from funding fees?
Yes. If you hold a position in the direction that the funding rate favors, you will receive fees from the opposing side. For example, if the rate is negative and you are long, you will receive payments from short position holders.
How does leverage affect the funding fee I pay?
Leverage itself does not directly multiply the funding rate. However, it dramatically increases your position value. Since the funding fee is a percentage of your position value, a highly leveraged position will incur a much larger absolute fee amount compared to an unleveraged position of the same nominal size.
Why did the funding rate calculation change?
The updated formula, which incorporates a dynamic interest rate and a depth-weighted premium index, provides a more robust and market-reflective calculation. It aims to improve fairness and enhance the overall trading experience for all users.