The funding rate is a tool that helps the perpetual contract mark value move closer to the index price of the corresponding spot underlying. core innovation points. When the index price deviates from the mark price, the system transfers funding charges between longs (buyers) and shorts (sellers). If the price is higher than the index price, it means that there are more long (buy) positions than short (sell) positions, and the long sellers will pay a certain funding fee to the short sellers, and vice versa.

Funding rates are usually calculated and exchanged regularly, for example, BitMEX and Binance both do so every 8 hours . Different exchanges may have different methods for determining funding rates, but the main purpose is to use funding rates to incentivize a balance between long and short positions. In addition to taking into account the difference between the index price and the quoted funding rate, the calculation of the funding rate may also involve factors such as the interest rate and demand of the contract. Exchanges usually disclose how funding rates are determined, and traders can monitor funding rates in real time on the exchange's trading platform.

When trading perpetual contracts, traders need to understand the funding rate mechanism and its impact , which is very important as it may affect the profitability of their positions!