Sign UpWhat Is Funding Rate and How It Works?
Intermediate
2024-11-05
What is the funding rate?
In the realm of crypto trading, funding rates are periodical flows exchanged between long and short position holders. The amount per lot will be based on the discrepancy between the perpetual futures and marked prices. When the market is bullish, the funding rate is usually positive. Traders with long positions will pay traders on the short side, while the funding rate will usually be negative when the market is bearish, and traders with short positions will pay traders on the long side.
Why is the funding rate important?
Unlike traditional futures, perpetual futures contracts in the crypto space 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 the funding rate.
Funding rate primarily helps perpetual contracts’ prices converge to the underlying asset's price. With sufficient liquidity, trading perpetual contracts are quite similar to trading in the spot market. This is known as the funding rate.
How to check funding rates on Toobit?
On the Derivatives trading page, traders can find icons like "Mark Price", "Index" and "Funding/Countdown". Click "Funding/Countdown", then traders may check the funding rate, which will fluctuate in real-time until the upcoming funding timestamp. The funding rate is not fixed and is updated every minute, according to the premium index, which affects the calculation of the funding rate until the end of the current funding interval.
Note
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Mark price will be calculated in real-time and can be different from the mark price pushed every second on the trading page.
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The funding rates for different trading pairs may vary. Users need to check the funding rate based on their selected trading pair.
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The funding fees paid by traders will be deducted from their available margin. When a trader does not have sufficient available margin, the funding fee will be deducted from the position margin.
Conclusion
In the crypto futures market, the funding rate plays a crucial role, ensuring that the price difference between the futures and spot market stays within equilibrium, allowing prices to return to normal levels. Overall, this serves to restrict malicious manipulation of futures prices. In the short term, funding rates are indicators of market liquidity, indicating investors' willingness to pay for leverage.
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