What Are Funding Fees & Funding Rate ?
The Funding Rate is a periodic payment mechanism in perpetual futures contracts that facilitates funding fees exchanged between traders holding long and short positions. These funding fees are settled at regular intervals, every 8 hours, and are calculated based on the Funding Rate of the moment that the countdown reaches 00:00:00. Consequently, it helps to keep the perpetual futures price close to the spot price.
If the futures price is higher than the spot price (the real market price of the asset), long traders pay Funding Fees to short traders.
If the spot price is higher than the futures price, short traders pay Funding Fees to long traders.
Positive Funding Rate → Longs pay Shorts
Negative Funding Rate → Shorts pay Longs
The Funding Rate determines which traders pay or receive Funding Fees and what percentage of their positions is involved.
When Funding Fees are high, they can lower your profits or make your losses worse, which means that you may have the chance to get liquidated if the market goes against your opened position.
At Freedx Futures, only perpetual contracts are offered.
Unlike traditional futures contracts, perpetual futures don't have a set expiration date, allowing traders to hold positions indefinitely.
How to calculate the funding fee?
Funding Fee = Notional Value x Funding Rate
- Positive rate → longs pay shorts
- Negative rate → shorts pay longs
- Example:
- Notional Value: 550000 USDT
- Funding Rate Percentage: 0.01% = 0.0001
Funding Fee = 550000 x 0.0001 = 55 USDT
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