How Is the Funding Rate Calculated Based on the Difference between the Contract and Index Price?
The funding rate is generally calculated using a formula that incorporates two main components: the Interest Rate Component and the Premium/Discount Component. The Premium/Discount Component is the key factor, derived from the difference between the perpetual contract's Mark Price and the Index Price.
A positive difference leads to a positive rate, and a negative difference leads to a negative rate. The formula ensures the rate reflects the market's deviation from the spot price.
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.
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
Formula ⎊ Periodic payments between long and short positions ensure that the perpetual swap price remains closely aligned with the underlying spot index.