Funding Rate

Funding Rate

The funding rate is the price rebalancing mechanism of the perpetual contract. Unlike traditional futures that need to be delivered when the futures expire (the delivery futures will be delivered at the index price, so the futures price will eventually return to the index price), the perpetual contract has no expiration or delivery, so it needs to use the funding rate mechanism to let the futures price anchor the spot price.

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Funding Fee Settlement Rules

Settlement Schedule

Every 8 hours is a settlement period. Settlement occurs 3 times a day:

Settlement Time (UTC)	Settlement Time (UTC+8)
00:00	08:00
08:00	16:00
16:00	00:00

Settlement Conditions

• Only users who hold positions at the time of settlement will be charged or receive funding fees
• If the position has been closed before the settlement, no funding fees will be charged or paid
• Each position tracks its last processed funding epoch to prevent double-settlement

Payment Direction

At the time of settlement, whether the user should charge or pay the funding fee is determined by the current funding rate and the user's position:

Funding Rate	Long Position	Short Position
Positive (> 0)	Pays funding fee	Receives funding fee
Negative (< 0)	Receives funding fee	Pays funding fee

Note: The funding fee is completely settled between users. The platform does not charge any fees for it.

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Funding Fee Calculation

Formula

$$\text{Funding Fee} = \text{Position Value} \times \text{Funding Rate}$$ $$\text{Position Value} = \text{Quantity} \times \text{Mark Price}$$

Example

Parameter	Value
Position	Long 10,000 GMYD
Mark Price	1.94 sCNH
Funding Rate	+0.01%

Calculation:

$$\text{Position Value} = 10{,}000 \times 1.94 = 19{,}400 \text{ sCNH}$$ $$\text{Funding Fee} = 19{,}400 \times 0.0001 = 1.94 \text{ sCNH}$$

Result: Since the funding rate is positive and the position is LONG, the user pays 1.94 sCNH to short position holders.

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Settlement by Margin Mode

Isolated Margin

For isolated margin positions, funding fees are settled in the following priority:

1. Deduct from Position Margin - Funding fee is deducted directly from the position's margin
2. Fallback to Wallet - If position margin is insufficient, deduct from wallet balance
3. Liquidation Risk - If both are insufficient, position margin is reduced to minimum and will be flagged for liquidation

Warning: After funding fee deduction, if position margin falls below maintenance margin, the position will be at liquidation risk.

Cross Margin

For cross margin positions, funding fees are settled from wallet balance:

• Receiving Funds: Added directly to wallet balance
• Paying Funds: Deducted from wallet balance only if sufficient funds available
• Insufficient Balance: Funding fee is skipped; position will be at higher liquidation risk

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Funding Rate Calculation

The funding rate is calculated using a simplified formula based on the Premium Index.

Premium Index

The Premium Index measures how much the perpetual contract price deviates from the spot (mark) price:

$$\text{Premium Index} = \frac{\text{Contract Price} - \text{Mark Price}}{\text{Mark Price}}$$

Where:

• Contract Price = Last traded price of the perpetual contract
• Mark Price = Fair price based on spot/index price

Premium Index	Market Condition
Positive	Contract trading at premium (futures > spot)
Negative	Contract trading at discount (futures < spot)

Funding Rate Formula

$$\text{Funding Rate} = \text{Premium Index} + \text{clamp}(\text{Interest Rate} - \text{Premium Index}, -0.05\%, +0.05\%)$$

Then apply safety cap:

$$\text{Final Funding Rate} = \text{clamp}(\text{Funding Rate}, -1\%, +1\%)$$

Parameters

Parameter	Value	Description
Interest Rate	0.01%	Base interest rate differential
Clamp Lower	-0.05%	Lower bound for interest adjustment
Clamp Upper	+0.05%	Upper bound for interest adjustment
Max Funding Rate	+1%	Maximum funding rate cap
Min Funding Rate	-1%	Minimum funding rate cap

Clamp Function

The clamp function limits a value within boundaries:

$$\text{clamp}(x, min, max) = \begin{cases} min & \text{if } x < min \\ max & \text{if } x > max \\ x & \text{otherwise} \end{cases}$$

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Calculation Examples

Example 1: Contract at Premium

Parameter	Value
Contract Last Price	2.00 sCNH
Mark Price	1.94 sCNH
Interest Rate	0.01%

Step 1: Calculate Premium Index

$$\text{Premium Index} = \frac{2.00 - 1.94}{1.94} = \frac{0.06}{1.94} = 0.0309 = 3.09\%$$

Step 2: Calculate Interest Adjustment

$$\text{Interest Rate} - \text{Premium Index} = 0.01\% - 3.09\% = -3.08\%$$ $$\text{clamp}(-3.08\%, -0.05\%, +0.05\%) = -0.05\%$$

Step 3: Calculate Funding Rate

$$\text{Funding Rate} = 3.09\% + (-0.05\%) = 3.04\%$$

Step 4: Apply Safety Cap

$$\text{Final Rate} = \text{clamp}(3.04\%, -1\%, +1\%) = 1\%$$

Result: Funding Rate = +1% (capped at maximum)

Long positions pay 1% of position value to short positions. This high rate incentivizes traders to short, pushing the contract price back toward the mark price.

Example 2: Contract at Discount

Parameter	Value
Contract Last Price	1.90 sCNH
Mark Price	1.94 sCNH
Interest Rate	0.01%

Step 1: Calculate Premium Index

$$\text{Premium Index} = \frac{1.90 - 1.94}{1.94} = \frac{-0.04}{1.94} = -0.0206 = -2.06\%$$

Step 2: Calculate Interest Adjustment

$$\text{Interest Rate} - \text{Premium Index} = 0.01\% - (-2.06\%) = 2.07\%$$ $$\text{clamp}(2.07\%, -0.05\%, +0.05\%) = 0.05\%$$

Step 3: Calculate Funding Rate

$$\text{Funding Rate} = -2.06\% + 0.05\% = -2.01\%$$

Step 4: Apply Safety Cap

$$\text{Final Rate} = \text{clamp}(-2.01\%, -1\%, +1\%) = -1\%$$

Result: Funding Rate = -1% (capped at minimum)

Short positions pay 1% of position value to long positions. This high negative rate incentivizes traders to go long, pushing the contract price back toward the mark price.

Example 3: Contract Near Mark Price

Parameter	Value
Contract Last Price	1.945 sCNH
Mark Price	1.94 sCNH
Interest Rate	0.01%

Step 1: Calculate Premium Index

$$\text{Premium Index} = \frac{1.945 - 1.94}{1.94} = \frac{0.005}{1.94} = 0.00258 = 0.258\%$$

Step 2: Calculate Interest Adjustment

$$\text{Interest Rate} - \text{Premium Index} = 0.01\% - 0.258\% = -0.248\%$$ $$\text{clamp}(-0.248\%, -0.05\%, +0.05\%) = -0.05\%$$

Step 3: Calculate Funding Rate

$$\text{Funding Rate} = 0.258\% + (-0.05\%) = 0.208\%$$

Step 4: Apply Safety Cap

$$\text{Final Rate} = \text{clamp}(0.208\%, -1\%, +1\%) = 0.208\%$$

Result: Funding Rate = +0.208% (within normal range)

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Summary

Item	Description
Settlement Frequency	Every 8 hours (3 times per day)
Settlement Currency	sCNH (same as margin)
Interest Rate	0.01% (fixed)
Funding Rate Range	-1% to +1%
Positive Rate	Longs pay, Shorts receive
Negative Rate	Shorts pay, Longs receive
Isolated Margin	Deducted from position margin
Cross Margin	Deducted from wallet balance