Purpose of the Funding Rate
The funding rate is a mechanism designed to ensure that the price of future contracts aligns closely with the spot price of the underlying asset.
Why is the Funding Rate Important?
Traditional contracts settle monthly or quarterly, at which point the contract price converges with the spot price, and all open positions expire. Future contracts, widely offered by cryptocurrency derivatives exchanges, function similarly to traditional contracts but with a key difference: they have no expiration date. As long as positions are not forcibly closed, traders can hold them indefinitely without tracking different delivery months. This makes trading future contracts very similar to trading pairs on spot markets.
Since future contracts do not settle in the traditional way, cryptocurrency exchanges introduced funding rates to ensure that future contract prices track the underlying index.
What is the Funding Rate?
The Funding Rate involves periodic payments between traders holding long or short positions, depending on the difference between future contract prices and spot prices.
⬆️ In a bullish market, the Funding Rate is positive, and long traders pay short traders.
⬇️ In a bearish market, the Funding Rate is negative, and short traders pay long traders.
LBank charges no fees for Funding Rate transfers; these payments occur directly between traders.
On LBank’s futures trading platform, the timing of funding fee calculations varies by cryptocurrency. To view the funding rate collection interval for a specific cryptocurrency, navigate to the futures trading interface, select the cryptocurrency, and click the funding rate and countdown timer in the top right corner. A pop-up will display the relevant details.
How to Calculate the Funding Amount?
The Funding Amount is calculated as:
| Funding Amount = Position Nominal Value × Funding Rate |
Where:
| Position Nominal Value = Mark Price × Size of a Contract |
Determinants of Funding Rates
The Funding Rate comprises two components: the Interest Rate and the Premium. The Premium is critical for ensuring the Perpetual Contract price converges with the underlying asset’s price.
LBank applies a flat Interest Rate, assuming that holding cash equivalents yields a higher return than holding BTC equivalents. By default, the Interest Rate is set at 0.03% per day (0.01% per funding interval) but may adjust based on market conditions, such as changes in the Federal Funds Rate.
When a significant price discrepancy exists between the Perpetual Contract and the Mark Price, a Premium Index is used to enforce price convergence. The Premium Index is calculated for each instrument as follows:
| Premium Index (P) = [Max(0, Impact Bid Price − Spot Price) − Max(0, Spot Price − Impact Ask Price)] / Spot Price |
Where:
|
Impact Bid Price: The price to buy the Notional Impact. |
The Notional Impact is the amount in USDT available to trade with a 200 USDT margin, set at 4,000 USDT by default.
LBank calculates the Premium Index every second and computes a time-weighted average across all indices up to the Funding Time.
The Funding Rate itself is determined by the following formula:
| Funding Rate (F) = Premium Index (P) + clamp(0.01% − Premium Index (P), 0.05%, −0.05%) |
In other words, if the Premium Index falls between −0.04% and 0.06%, the Funding Rate equals 0.01% (the Interest Rate). If the difference between the Interest Rate (I) and the Premium Index (P) is within ±0.05%, then:
| F = P + (I − P) = I |
Thus, the Funding Rate equals the Interest Rate in such cases.
How to check the Funding Rate?
Web
Steps:
- 👉Go to https://www.lbank.com/
- Tap [Futures], select your [Target Pair], or search it directly.
- Check Funding Rate/Countdown details for each pair as captured.
- Tap [Learn More] or [Funding Rate History Records] for details.
App
Steps:
- Open LBank App, tap [Futures],
- Tap [Target Pair] to select or ]search it directly.
- Tap to check the definition of [Funding Rate/Countdown].
- Tap [Learn More] for details.
- Tap [Got it] to return.
- Tap [Learn more] to see details.
- Use the [Calendar] icon to set a date range, then tap [Confirm] for detailed results.
*In case of translation discrepancies, the English version prevails.