The funding fee mechanism anchors the trading price of perpetual contracts to the spot price of the underlying asset.
Funding Fee = Positional Value * Funding Rate
Assuming funding payments occur every 8 hours:
- The funding fee is directly exchanged between the buyers and sellers every 8 hours. When the funding rate is positive, long position holders pay the short position holders. When the funding rate is negative, short position holders pay the long position holders.
- If a trader holds a position during the funding fee settlement time, they will either pay or receive funding fee. You can check the funding rate and the next funding fee settlement time on the trading interface:
How to Calculate Funding Fee
Funding Fee = Positional Value * Funding Rate
The funding rate consists of two parts: interest rate differential and premium index.
Pionex calculates the premium index every 5 seconds and then calculates its mean (P) every N* hours.
N* = Funding Interval. If funding fee settlement occurs every 8 hours, then N = 8. If funding fee occurs every 1 hour, then N = 1.
Funding Rate (F) = Average Premium Index (P) + clamp(Interest Rate Differential (I) – Average Premium Index (P), 0.05%, -0.05%)
Where: clamp(value, max, min) means to truncate the value to the lower limit min and the upper limit max, i.e.,
- If value < min, return min.
- If value > max, return max.
- Otherwise, return value.
So, if (I-P) is between +/-0.05%, then F = P + (I-P) = I. In other words, the funding rate will be equal to the interest rate differential.
The calculated funding rate will be applied to the trader’s Positional Value, and the corresponding funding fee to be paid or received will be calculated at the respective funding fee settlement time.
Interest Rate Differential (I) = (Quoted Currency Daily Interest Rate – Base Currency Daily Interest Rate) / Funding Rate Frequency
- Funding Rate Frequency = 24 / Funding Interval
