How Does the Funding Rate Mechanism Work in Perpetual Futures?
The funding rate is a small, periodic payment exchanged between long and short traders. It is designed to keep the perpetual futures price anchored to the spot price.
If the futures price is above spot (positive basis), the funding rate is positive, and longs pay shorts. If futures is below spot (negative basis), shorts pay longs.
Glossar
Funding Rate Mechanism
Mechanism ⎊ Funding Rate Mechanisms within cryptocurrency derivatives represent periodic payments exchanged between traders holding opposing positions in perpetual contracts, designed to anchor the perpetual contract price to the underlying spot market.
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.
Perpetual Futures
Structure ⎊ Perpetual Futures are a type of derivative contract, native to the cryptocurrency market, that allows traders to speculate on the future price of an underlying asset without a fixed expiration date.
Futures Price
Derivatives ⎊ The futures price, within cryptocurrency and financial derivatives, represents the contractual agreement to buy or sell an asset at a predetermined price on a specified future date.