How Does Volatility Affect the Probability of a "Funding Rate War"? ⎊ Path

How Does Volatility Affect the Probability of a “Funding Rate War”?

A "funding rate war" is not a standard market term but could be interpreted as a rapid, competitive change in the funding rate driven by market participants. High volatility increases the potential for rapid rate changes because the price deviation between the contract and spot is more extreme.

However, the funding rate is an output of the market imbalance, not a competitive tool. Arbitrageurs, in their pursuit of profit, stabilize the rate, mitigating extreme deviations.

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Glossar

Funding Rate

Cost ⎊ The Funding Rate is the periodic payment exchanged between long and short positions in perpetual futures contracts, designed to anchor the contract price to the underlying spot index price.

Probability

Modeling ⎊ Probability is fundamental to quantitative finance, providing the mathematical framework for modeling asset price movements and calculating risk.