Perpetual Funding Rate | dYdX Help Center (2024)

FAQs

How is the perpetual funding rate calculated? ›

Perpetual Futures and the Funding Rate

The funding rate is usually calculated based on a combination of the perpetual contract's price, the spot price, and an interest rate component.

The funding rate reflects overall market sentiment. A high positive rate signals bullish sentiment, with traders willing to pay more to maintain long positions.

Trade against the funding rate: This strategy involves trading against the short-term market trend to take advantage of the funding fees. By taking a position against the trend just before the funding fee update, traders can capture these fees as profit.

When the funding rate is positive, the long position holders in perpetual futures contracts pay funding fees to the short position holders. Conversely, when the funding rate is negative, the short position holders pay long position holders.

Perpetual futures are a type of derivative contract that allows you to speculate on the future price of an underlying asset, such as cryptocurrency. You don't need to own it, and there's no expiration date.

Futures contracts are priced based on the forward looking market price of an underlying asset, have a specific expiration date and can be settled physically or financially. Perpetual futures are designed to trade close to the underlying asset price, do not expire or settle and can be held indefinitely.

On the flip side, negative funding rates (rates under '0') suggest a dominant bearish sentiment. In this scenario, short position traders are in control and are willing to pay long traders. Negative funding rates indicate a belief among traders that the market is more likely to experience a downward movement.

Funding payments are exchanged continuously every second. The funding rate is updated every hour, but is represented as an 8-hour rate, indicating the amount of funding accounts may expect to pay/receive over an 8-hour period.

Funding rate = max(-1%, min((Mark Price - Index Price) / Index Price, 1%)) / 8. In a positive funding rate, long position holders pay funding to short position holders. A negative funding rate means short position holders pay funding to long position holders.

Funding Rate Farming: The Basics

By simultaneously taking opposite positions on Clone and a perpetual exchange like Drift, traders can profit from funding rates while minimizing market exposure, all within Solana DeFi.

How to use funding rate indicator? ›

The funding rate indicator can be used in a variety of ways. Traders can use it to gauge the sentiment of the market. If the funding rate is consistently positive, it suggests that there is more demand for long positions than short positions, indicating that the market is bullish.

A high funding rate means that long positions need to pay a significant amount of funding fees to short positions. This indicates a high demand for long positions relative to short positions, which can result in the price of perpetual futures contracts being higher than the underlying asset price.

The funding rate represents the difference between the mark price of the perpetual futures market and the index price, which is equivalent to the spot market of the underlying asset. The funding rate ensures that the funding mechanism aligns the futures market price with the index price.

Funding Payment means the amount which is equal to the monetary value required by the Company to be Loaded to Payment Instruments. Sample 1. Funding Payment .

The realized funding rate represents the actual funding rate calculated over the previous funding interval, and is used in determining the funding payment. The predicted funding rate is the current estimate of what the funding rate will be at the end of the current funding interval.

Funding Rate

Funding is a series of continuous payments that are exchanged between longs and the shorts. When a Perpetual Swap contract price is higher than the spot price i.e. it is trading at a premium, longs pay funding to shorts.

Funding fees serve to align the futures price with the spot price. When the market is in contango, long position holders pay fees to short position holders. Conversely, in backwardation, short position holders compensate those in long positions.

For instance, if a user buys Bitcoin on the spot market, they pay and get their Bitcoin immediately at the current price. But with perpetual contracts, traders bet on the asset's price without actually exchanging the asset right away. They can keep this position as long as they have enough margin.

ABOUT THIS INDICATOR This is a simple indicator that can help you manage the risk when you are trading, and especially if you are leverage trading. The indicator can also be used to help visualize and to find trades within a suitable or predefined trading range.