1. What is the Funding Rate?
Funding rates are periodical cash flows exchanged between long- and short-position holders. The absolute amount per lot will be based on the difference between the perpetual Futures and index prices. When the market is bullish, the funding rate is usually positive. Traders with long positions will pay traders on the short side. Conversely, the funding rate will usually be negative when the market is bearish, and traders with short positions will pay traders on the long side.
Please note that CoinTR only helps facilitate the exchange of funding amounts between long- and short-position holders. CoinTR does not charge any service fees.
2. Why is the Funding Rate important?
Unlike traditional Futures, perpetual Futures contracts have no expiration date. Traders can hold their positions perpetually unless they are liquidated. To ensure perpetual contracts’ prices correspond to their underlying markets, crypto exchanges created a mechanism known as Funding Rate.
The funding rate primarily helps perpetual contracts’ prices converge to the underlying asset's price. With sufficient liquidity, trading perpetual contracts are very similar to trading in the spot market.
As such, crypto exchanges created a mechanism to ensure that perpetual contract prices correspond to the index. This is known as the Funding Rate.
3. How are Funding Rates calculated on CoinTR?
Funding Amounts are calculated using the following formula:
Funding Amount = Nominal Value of Positions * Funding Rate
Nominal Value of Positions = Mark Price * Size of a Contract (for USDⓈ-Margined contracts)
Contract Multiplier * Size of a Contract/Mark Price (for Coin-Margined contracts)
Funding payments generally occur every 8 hours at 00:00 UTC, 08:00 UTC, and 16:00 UTC for all CoinTR Futures perpetual contracts. Traders are only liable for funding payments in either direction if they have open positions at the pre-specified funding times. You are not liable for any funding if you do not have a position. If you close your position before the funding time, you will not pay or receive any funding.
Please note that the funding rate shown represents an estimation of the last 8 hours of the premium index. For example, from 09:00 UTC, the funding rate calculation uses the premium index dataset from 01:00 UTC to 09:00 UTC (rather than from 08:00 UTC to 09:00 UTC).
4. What determines the Funding Rate?
There are two components to the Funding Rate: the Interest Rate and the Premium. CoinTR uses a flat interest rate, with the assumption that holding cash equivalent returns a higher interest than BTC equivalent.
On CoinTR Futures, the interest rate is fixed at 0.03% daily by default (0.01% per funding interval since funding occurs every 8 hours).
Premium Index (P) = [Max(0, Impact Bid Price - Price Index ) - Max(0, Price Index - Impact Ask Price)] / Price Index
Impact Bid Price = The average fill price to execute the Impact Margin Notional on the Bid Price
Impact Ask Price = The average fill price to execute the Impact Margin Notional on the Ask Price
Price Index is the weighted average value of the underlying asset listed on major spot exchanges.
The Impact Margin Notional (IMN) is used to locate the average Impact Bid or Ask price in the order book. IMN for USDⓈ-Margined contracts is the notional available to trade with 200 USDT worth of margin (price quote in USDT). IMN for COIN-Margined contracts is the notional available to trade with 200 USD worth of margin (price quote in USD).
Impact Margin Notional (IMN) = 200 USDT / Initial margin rate at the maximum leverage level
For example, if the maximum leverage of BNBUSDT perpetual contract is 20x, and its corresponding Initial Margin Rate is 5%, then the Impact Margin Notional (IMN) is 4,000 USDT (200 USDT / 5%), and the system will take an IMN of 4,000 USDT every minute in the order book to measure the average Impact Bid/Ask price.
For more information, please visit Leverage and Margin of USDⓈ-M Futures.