1. Introduction to Funding Fees
Funding fees are not trading fees paid to CoinCatch, but rather payments exchanged between traders. This mechanism aims to maintain the balance between futures markets and spot markets, ensuring that the trading price of perpetual futures closely follows the reference price of the underlying cryptocurrency, thus ensuring market fairness and stability.
2. Details of Funding Fees
Funding fees are settled every eight hours at 8:00 AM, 4:00 PM, and 12:00 AM (UTC+8). If you hold a position during these times, you will either pay or receive a funding fee. To enhance user experience, the platform does not interrupt trading during funding fee calculations, though there might be slight delays in settlement times.
Funding fees are deducted from the fixed margin of the user's position until the user's margin rate equals the maintenance margin rate. Any excess beyond this is not charged. The actual funding fee a user receives also depends on the total amount deducted from the counterparty's account by the system.
3. How to View Funding Fees
3.1 Funding Fees: The amount a trader ultimately pays or receives. You can view the history of funding fees on this page.
3.2 Funding Rate: The rate that determines who pays and the amount of the funding fee. The funding rate is based on the difference between the perpetual futures price and the spot price of underlying cryptocurrency. You can check the historical funding rates on this page.
4. Funding fee calculation
4.1 The formula for calculating the rate that you receive or pay is as follows:
Funding fee = position value × funding rate
The value of your position has nothing to do with leverage and is not determined by the amount of margin allocated to that position.
4.2 The formula for calculating the funding rate is as follows:
Funding rate = average premium index (P) + clamp{rate index (I)−average premium index (P), a, b}
Where the interest rate index I = 0.01%, the average premium index P is the simple average of the premium indices, and the premium index reflects the premium relationship between the futures price and the spot index price, with the specific formula as follows:
Premium index = [Max(0, impact bid price - price index ) - max(0, price index - impact ask price)] ÷ price index
The premium index is calculated every minute.
Impact bid and ask prices
Impact bid price = the average fill price to execute the Impact Margin Notional on the bid side.
Impact ask price = the average fill price to execute the Impact Margin Notional on the ask side.
Impact Margin Notional
Impact Margin Notional is the notion available to trade at 200 USDT worth of margin.
The specific formula is as follows:
Impact Margin Notional = 200 USDT ÷ minimum maintenance margin ratio
Example: If the minimum maintenance margin ratio for BTCUSDT is 0.5%.
Impact Margin Notional for BTCUSDT = 200 USDT ÷ 0.5% = 40,000 USDT
5. What Is the Impact of High Funding Fees?
5.1 Reduced Profits: If traders are on the paying side of high funding fees, their profits can be significantly reduced, especially for long-term positions. Higher funding rates lead to higher funding fees, thereby reducing overall profitability. Conversely, if traders are on the receiving side, funding fees can enhance their profits.
5.2 Increased Liquidation Risk: High funding fees can severely affect a trader's ability to maintain positions in the market. Funding fees are periodically deducted from a trader's margin balance, significantly reducing the margin available to sustain positions. If traders do not have sufficient margin to cover the funding fees, it may result in liquidation.
6. Factors Influencing Funding Fees
Smaller market cap tokens in futures contracts are riskier and more volatile due to lower market liquidity. Fewer participants and lower trading volumes can lead to more sensitive price movements.
Understanding the characteristics and impacts of funding fees is crucial for traders:
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Risk Management: Consider how funding fees affect the cost of holding a position and develop sound trading strategies.
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Market Analysis: Funding fees can be used as indicators to gauge market trends and volatility.
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Futures Pair Selection: Choose trading instruments that align with your strategy based on the funding fees of different futures pairs.
In conclusion, funding rates and fees are vital for maintaining the contract prices in perpetual markets. Monitoring funding rates, fee caps, and funding periods is advisable. By adjusting your holding times and closely monitoring your margin balance, you can minimize the impact of funding fees on your trading performance and reduce the risk of liquidation.
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
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