What Is the Calculation Formula for the Funding Payment?
The funding payment is calculated by multiplying the position's notional value by the funding rate. The notional value is the size of the position multiplied by the Mark Price.
The funding rate itself is often calculated using a formula involving the difference between the Mark Price and the Index Price, adjusted by an interest rate component and a time decay factor. This final payment is exchanged directly between traders.
Glossar
Calculation Formula
Derivation ⎊ This lexicon entry defines the Calculation Formula as the precise mathematical structure employed to determine a specific financial metric within the volatile landscape of cryptocurrency derivatives and options trading.
Funding Payment
Mechanism ⎊ Funding Payment within cryptocurrency derivatives represents a periodic exchange, typically occurring hourly or every eight hours, predicated on the differential between perpetual contract prices and the underlying spot market index.
Payment
Settlement ⎊ Payment within cryptocurrency, options trading, and financial derivatives represents the actual transfer of value, typically digital assets or fiat currency, to fulfill contractual obligations arising from a trade or contract execution.
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
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.