What Factors Determine the Funding Rate?
The funding rate is determined by two main factors: the interest rate and the premium. The interest rate is the difference between the interest rates of the two currencies in the perpetual contract.
The premium is the difference between the price of the perpetual contract and the price of the underlying cryptocurrency. The funding rate is calculated every eight hours, and it can be either positive or negative.
Glossar
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.
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.