1. What is Funding Rate?

The funding rate is at the core of Perpetual Futures, designed to anchor the market price of Perpetual Futures to the spot price.
  • When the funding rate is positive, longs (buyers) pay the funding fee to shorts (sellers).
  • When the funding rate is negative, shorts (sellers) pay the funding fee to longs (buyers).
  • Note: The exchange itself does not charge any funding fee. The fee is directly settled between users.

 

2. Settlement Frequency and Schedule

Funding fees for perpetual futures are settled at regular intervals. Based on the market activity and volatility characteristics of each trading pair, the settlement cycle generally falls into the following scenarios:
  • Standard Settlement Cycle: Most tokens are settled every 8 hours (3 times per day).
  • Special Settlement Cycle: For certain volatile or specific tokens, the settlement frequency may be shortened to every 4 hours or 1 hour to more effectively smooth out price discrepancies.
  • Settlement Trigger Conditions: The funding fee is only charged or allocated to users who hold positions at the settlement moment. If you close your position before the settlement time, you will not be included in the funding fee settlement for that cycle.

 

3. Funding Rate Calculation Formula

The funding rate mainly consists of two components: Interest rate and premium.
The final funding rate (F) is calculated as follows: F = P + Clamp( I - P, β,-β)
Of which,
  •  I  = Interest Rate
  • P = Average Premium Index
  • Clamp = Range-limiting function used to ensure the rate fluctuates mainly around the interest rate, unless the premium is significantly large.
  • β is the truncation parameter for the range
About Clamp:
  • If ( I - P) is within the range [-β,β], then F = I (i.e., the funding rate equals the interest rate)
  • If ( I - P) > β, then F = P + β
  • If ( I - P) < - β, then F = P - β
 

Detailed Breakdown of Components

  1. Interest Rate (I)
The interest rate is determined by the difference in lending rates between the base currency and the quote currency. The fixed base interest rate is set as follows for different futures types:
  • Digital Currency Futures: Base rate is 0.01% (based on an 8-hour interval).
  • Forex Futures: Base rate is 0.004% (based on an 8-hour interval).
Note: For actual calculations, the interest rate will be proportionally adjusted based on the settlement cycle of the funding rate.
 
  1. Premium Index (PI)
The premium index reflects the degree of deviation between the futures contract price and the index price. The system calculates the premium index every 5 minutes during the settlement period of the funding rate.
Formula:
               PI = {max(0, Impact Bid Price − Price Index) − max(0, Price Index − Impact Ask Price)} / Price Index

Key Parameters
  1. Price Index: A weighted average of prices from major exchanges.
  2. Impact Margin Notional (IMN): A benchmark used to assess the impact of market depth on prices.
 
               IMN = 200 USDT / Initial Margin Ratio of Maximum Leverage Level

  1. Impact Bid Price: The average filled price when the cumulative bid order amount reaches the Impact Margin Notional (IMN).
  2. Impact Ask Price: The average filled price when the cumulative ask order amount reaches the Impact Margin Notional (IMN).
 

Average Premium Index (P)

To reduce the impact of short-term market fluctuations on the rate, the funding rate is calculated using a weighted average of the premium index during the settlement period. This calculation gives higher weights to data closer to the settlement time.
Weighted Average Calculation Formula:
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Of which,
  • PI is the premium index at the nth sampling point (taken every 5 minutes) within the settlement period.
  • N is the total number of sampling points in the period.
  • w is the weight of the nth premium index sample

Example

Assume the current contract is a digital currency Perpetual Futures, and the settlement period is about to end. The parameters are as follows:
  1. Interest Rate (I): 0.01%
  2. Truncation Parameter (β): 0.05%
  3. Sampled data: Assume the weighted average premium index (P) is 0.03%.
Calculation:
  1. I - P = 0.01% - 0.03% = -0.02%.
  2. Check whether the value falls within the Clamp range [-0.05%, 0.05%].
  3. Since -0.02 is within the range, the Clamp function returns -0.02%.
  4. The final funding rate F = P + (I - P) = 0.03% + (-0.02%) = 0.01%.
In this example, since the premium deviation is small, the funding rate returns to the base rate of 0.01%.

 

4. Payment and Receipt Rules

  1. Settlement Mechanism: Only users holding positions at the settlement time (e.g., 08:00 UCT+8) are required to pay or receive funding fees.
  2. Calculation:
    1. Funding Fee = Nominal Position Value × Funding Rate at Settlement Time
    2. Nominal Position Value = Position Amount × Mark Price
  3. Fee Deduction: Funding fees will be deducted from or added to the user's margin. If a user's margin is insufficient for payment, there may be a risk of liquidation.

 

5. Risk Warning

The funding rate is volatile. During extreme market conditions, the funding rate may rise or fall significantly, leading to high position costs. Please closely monitor your position margin level and manage risk appropriately.
 
BingX Product Team
 
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BingX Official Website: https://bingx.com
 
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