In perpetual futures trading, funding fees are a key mechanism for balancing long and short positions. Through the funding mechanism, the price of perpetual contracts can remain close to the spot index price of the underlying asset, helping maintain market stability.
This article explains what funding fees are, when they are charged, and how they are calculated.
1. What are funding fees?
Unlike traditional futures contracts, perpetual contracts do not have an expiration date. To prevent prices from deviating significantly from the underlying asset's spot price over time, exchanges use a funding rate mechanism to regulate the market.
Funding fees are periodic payments exchanged directly between long and short position holders, rather than fees charged by the exchange.
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When the funding rate is positive, long position holders pay funding fees to short position holders.
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When the funding rate is negative, short position holders pay funding fees to long position holders.
Funding fees are exchanged directly between traders, and no fees are charged by the platform.
The mechanism helps drive the perpetual contract price toward the index price and plays an important role in maintaining market balance.
2. When are funding fees charged?
Funding fees are typically settled every 8 hours at 00:00, 08:00, and 16:00 (UTC). Some contracts may have different settlement intervals (e.g., every 1, 2, or 4 hours), depending on the specific contract.
Only users who hold open positions at the time of settlement will pay or receive funding fees. If a position is closed before settlement time, no funding fees will be incurred.
Settlement intervals may vary by trading pair. Please refer to the contract details page for the most accurate information.
3. How funding fees are calculated
3.1 Formula:
Funding Fee = Position Value × Funding Rate
= Position Size × Mark Price × Funding Rate
The direction of payment depends on whether the funding rate is positive or negative.
3.2 Example:
Assume a trader holds a long position of 10 BTCUSDT perpetual contracts with
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Mark price: 8,000 USDT
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Funding rate: 0.01%
Step 1: Calculate the position value
Position Value = 10 × 8,000 = 80,000 USDT
Step 2: Calculate the funding fee
Funding Fee = 80,000 × 0.01% = 8 USDT
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If the funding rate is positive, the long position holder must pay 8 USDT to short position holders.
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If the funding rate is negative, short position holders will pay 8 USDT to long position holders.
4. Impact of funding fees on positions
Funding fees paid are deducted from the trader's available balance. If the available balance is insufficient, the funding fee will be deducted from the position margin. In this case, the liquidation price will move closer to the mark price, increasing the risk of liquidation.
If the position margin is insufficient to cover the funding fee, it may become negative. However, liquidation may not occur if the position still has sufficient unrealized profit to sustain it.
For this reason, traders holding positions for an extended period should closely monitor changes in the funding rate.
Disclaimer
This article is for reference only. Toobit does not provide investment recommendations. Digital assets may experience significant price volatility. Please carefully consider whether trading or holding digital assets is appropriate for you based on your financial circumstances. If you require further information regarding your specific situation, please consult your legal, tax, or investment advisors, and ensure that you understand and comply with the applicable laws and regulations in your jurisdiction.
