How Does the Funding Rate in Perpetual Futures Contracts Relate to the Cost of Carry?
The funding rate in a perpetual futures contract is a periodic payment between long and short traders designed to keep the perpetual contract price close to the spot price. It serves as a dynamic cost of carry.
A positive funding rate means long holders pay shorts, analogous to a positive carrying cost, while a negative rate is analogous to a negative carrying cost.
Glossar
Perpetual Futures Contracts
Structure ⎊ Perpetual futures contracts are a unique type of derivative in the cryptocurrency market that mirrors a traditional futures contract but lacks a fixed expiration date.
Positive Funding Rate
Mechanism ⎊ A positive funding rate within perpetual futures contracts, prevalent in cryptocurrency derivatives exchanges, signifies a prevailing long bias amongst traders.
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.