USDT-M Perpetual Contracts Funding Rate

Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. Therefore, depending on open positions, traders will either pay or receive funding. 

Crypto funding rates prevent lasting divergence in the price of both markets. It is recalculated several times a day - BitForex USDT-M Perpetual Contracts does this every eight hours. 

On BitForex USDT-M Perpetual Contracts, funding rates and a countdown to the next funding are displayed as such: 

Funding rate displayed on BitForex USDT-M Perpetual Contracts

What determines the funding rate?

The funding rate comprises two components: the interest rate and the premium. 

On BitForex USDT-M Perpetual Contracts, the interest rate is fixed at 0.03% daily (0.01% per funding interval), with the exception of contracts such as LINKUSDT and LTCUSDT, where interest rates are 0%. Meanwhile, the premium varies according to the price difference between the perpetual contract and mark price.

In periods of high volatility, the price between the perpetual contract and the mark price may diverge. In such instances, the premium increases or decreases accordingly. 

A large spread equates to a high premium. Conversely, a low premium indicates a narrow spread between the two prices. 

When the funding rate is positive, the price of the perpetual contract is higher than the mark price, thus, traders who are long pay for short positions. Conversely, a negative funding rate indicates that perpetual prices are below the mark price, which means that short positions pay for longs. 

Funding rates are paid peer-to-peer. Therefore, BitForex takes no fees from funding rates as they happen directly between traders.

How does it impact traders?

As funding calculations consider the amount of leverage used, funding rates may have a big impact on one’s profits and losses. With high leverage, a trader that pays for funding may suffer losses and get liquidated even in low volatility markets. 

On the other hand, collecting funding can be very profitable, especially in range-bound markets.

Thus, traders can develop trading strategies to take advantage of funding rates and profit even in low-volatility markets.

Essentially, funding rates are designed to encourage traders to take positions that keep perpetual contract prices line in with spot markets.