Perpetual contracts use a funding fee mechanism to anchor the market price of perpetual contracts to the spot price.
The funding fee is charged every 8 hours at 08:00, 16:00 and 24:00 (HKT) (the actual charging time will last about 30 seconds, please refer to the actual charging time). Users are only required to pay or receive a funding fee if they hold a position at that time. If the position is closed before the fee is charged, there is no need to pay the funding fee. (If there is a case of placing a contract in advance before the settlement, there is no need to pay the funding fee for the current period).
Theoretical Funding Fees
Composite rate:
Each contract consists of two coins: the underlying variety and the denominated variety. For example: BTC/USDT perpetual contract, the underlying variety is BTC and the denominated variety is USDT.
Underlying species interest rate: the underlying species in the market daily borrowing and lending rate. If the underlying variety of BTC/USDT perpetual contract is BTC, the underlying variety of interest rate is the daily borrowing and lending rate of BTC.
Priced varieties of interest rates: priced varieties of daily borrowing and lending rates in the market. Such as BTC/USDT perpetual contract of the denominated varieties for USDT, the denominated varieties of interest rates is the daily borrowing and lending rate of USDT.
Composite interest rate = (denominated species interest rate - the underlying species interest rate) / funds rate settlement frequency
Currently, the interest rate for all perpetual contracts is 0.06% for the denominated varieties and 0.03% for the underlying varieties, and the frequency of settlement of the funding rate is 3 times (3 settlements per day). The current combined interest rate for all perpetual contracts, therefore, is 0.01%.
Premium:
a. Funding rate base rate = Funding rate for the current period * (time interval between the current time and the settlement of the current period / settlement period)
If the current period's BTC/USDT perpetual contract funding rate is 0.01%, the current time is 12:00, the settlement time of the current period is 16:00, i.e., there are still 4 hours from the settlement, and the settlement cycle is 8 hours (settlement every 8 hours), then the current funding rate base rate = 0.01% * ( 4 / 8 ) = 0.005%.
b. Reasonable Price
The Reasonable Price is a relatively reasonable reference price for a perpetual contract based on the current spot index price and the current funding rate basis rate.
Reasonable price = Index price * (1 + Funding Rate Basis Spread)
If the current BTC index price is 10,000 USDT, and the BTC/USDT perpetual contract funding rate basis rate is 0.005%, then the current BTC/USDT perpetual contract reasonable price = 10,000 * ( 1 + 0.005% ) = 10,000.5 USDT.
c. Depth Weighted Bid/Ask Price
Depth-weighted bid price, refers to the average bid pending price of contracts with a cumulative pending order volume of N USDT, based on the current intraday pending order situation, starting from the first tick of the bid order.
Depth-weighted ask price, refers to the current market situation, from the first sell order, the cumulative volume of pending orders to reach the average price of N USDT contract sell orders.
Where the value of N range: 8000USDT, that is, Sum ( pending order price * pending order quantity ) = 8000 USDT
d. Premium Index
Premium Index, reflects the current premium generated by the combination of the funding rate base rate, as well as the depth-weighted bid / ask price deviation from the reasonable price.
Premium Index = [ Max ( 0 , Depth Weighted Bid - Fair Price ) - Max ( 0 , Fair Price - Depth Weighted Ask ) ] / Index Price + Funding Rate Basis Spread;
From the formula.
a) when depth-weighted Ask ≥ Reasonable Price ≥ depth-weighted Bid, Premium Index = Funding Rate Basis Difference Rate
b) When Depth-Weighted Ask > Depth-Weighted Bid > Reasonable Price, Premium Index = ( Depth-Weighted Bid - Reasonable Price ) / Index Price + Funding Rate Basis Spread
c) When Reasonable Price > Depth-Weighted Ask Price > Depth-Weighted Bid Price, the Premium Index = ( Depth-Weighted Ask Price - Reasonable Price ) / Index Price + Funding Rate Basis Spread
The Premium Index is calculated every minute.
e. Average premium index
The current average premium index is the arithmetic average of all premium indices for the current period within the last 8 hours.
For example, for the period 8:00-16:00, the average premium index at 8:30 is the arithmetic average of all premium indices from 8:00-8:30; the average premium index at 15:00 is the arithmetic average of all premium indices from 8:00-15:00.
Average Premium Index, calculated every minute.
The Premium Index is calculated every minute and then its minute time-weighted average is calculated every 8 hours. The funding rate is calculated based on the interest rate and the premium/discount component every 8 hours. Add +/- 0.05% buffer
Funding Rate (F) = Premium Index (P) + clamp (Interest Rate (I) - Premium Index (P), 0.05%, -0.05%)
Therefore, if (I-P) is between +/-0.05%, then F = P + (I-P) = I. In other words, as long as the Premium Index is between -0.04% and 0.06%, then the Funding Rate will be equal to 0.01% (Interest Rate)
Actual Funding Fee
Full Position Mode: Funding fee will be charged by deducting the available margin from the user's full position account. When the available margin is insufficient, all full position pending orders will be canceled, and the excess will be deducted from the position margin, up to a maximum of margin equal to the Maintenance Margin + Closing Handling Fee, with the excess no longer being charged.
Position-by-position mode: Funding fees will be charged with priority to the available balance of the user's full position account. If the available balance is insufficient, the position-by-position opening order will be canceled, and the excess will be deducted from the fixed margin of the user's position-by-position position, up to a margin equal to the maintenance margin + closing costs, and the excess will not be charged.
The actual amount of funds that the user can charge also depends on the total amount deducted from the counterparty's account by the system.
Order of Collection
If the user holds multiple positions in perpetual contracts that require funding fees, the funding fees will be charged in a certain currency order until the user's margin equals the maintenance margin + closing fee, and the excess will not be charged.
Funding Rate Logic
The current funding rate, which is calculated based on the premium of the previous cycle (8 hours), takes the funding rate at the moment of the end of the previous cycle as the funding rate for the current cycle, which is a fixed value during the current cycle.
Assuming that the funding fee is collected at 16:00, the funding rate is calculated based on the premium in the previous cycle (00:00 - 07:59), and the funding rate at the time of collection is the funding rate calculated at the moment of 07:59.