Does the Funding Rate Calculation Use a Simple Average or a More Complex Metric?
The funding rate calculation typically uses a complex metric that involves two main components: the interest rate component and the premium/discount component. The premium/discount component, which reflects the basis, is usually the dominant factor.
The interest rate component is often a fixed, small rate set by the exchange. The final rate is a function of the time-weighted average of the premium over the funding interval.
Glossar
Simple Average
Calculation ⎊ A simple average, also known as a simple moving average (SMA), is a calculation method where all data points within a specified look-back window are summed and divided by the number of data points.
Interest Rate
Yield ⎊ Interest rate, within cryptocurrency derivatives, represents the cost of capital or the return on an underlying asset utilized in constructing a derivative position, impacting pricing models and arbitrage opportunities.
Funding Rate
Mechanism ⎊ Funding Rate represents a periodic payment exchanged between traders holding opposing positions in perpetual futures contracts, establishing an equilibrium between contract prices and the underlying spot market.
Interest Rate Component
Yield ⎊ Within cryptocurrency derivatives and options trading, yield represents the anticipated return derived from an asset or contract, critically influenced by prevailing interest rate dynamics.
Funding Rate Calculation
Mechanism ⎊ Funding rate calculation within cryptocurrency derivatives represents a periodic payment exchanged between long and short position holders, designed to align the perpetual contract price with the underlying spot market price.