Funding Overview

The Funding mechanisms exist to bridge the gap between Last Traded Price and Mark Price.

 

 

Funding Rate

When the Funding Rate is positive, traders holding long positions will pay traders with short positions a funding fee. Conversely, if the funding rate is negative, the traders holding short positions will pay the funding fee to the traders with long positions.

At the "Contract Details" section, traders can check the funding rate which has been fixed for upcoming funding timestamp (within 8 hours). When traders hover the cursor on top of the Funding rate, the Predicted Funding Rate will be displayed and it illustrates the predicted funding rate for the subsequent funding timestamp (within 16 hours). It is not fixed and is updated every minute according to Interest Rate and Premium Index that affects the calculation of the funding rate until the end of the current funding interval.

 

Funding Rate Equation

$$ \textsf{Funding Rate(F)} = {\textsf{Premium Index(P)}+\textsf{clamp(Interest(I) - Premium Index(P), 0.05%, -0.05%)}} $$

 

 

MCS calculates the Premium Index(P) and Interest Rate(I) every minute and then performs an 8-Hour Time-Weighted-Average-Price (TWAP) over the series of minute rates. The Funding Rate is next calculated with the 8-Hour Interest Rate Component and the 8-Hour Premium / Discount Component. A +/-0.05% dampener is added.

Traders can use the above equation to check the funding fee payable or receivable at the time of the upcoming funding fee settlement.

 

Funding Rate Limit

\begin{align}&\small\textsf{Funding Rate}\leq\textsf{(Base Initial Margin} - \textsf{Base Maintenance Margin)}\times\textsf{75%}\\&\small\textsf{Funding Rate}\geq\textsf{(Base Initial Margin} - \textsf{Base Maintenance Margin)}\times\textsf{75%}\end{align}

 

 

Funding Settlement

Funding fees are exchanged every 8 hours, 3 times a day at <0100,0900,1700> UTC. Traders who do not hold a position at the time of funding will not pay/receive the funding fee. The settlement will only be made between traders that hold a position at the time of funding.

 

Funding Fee Equation

$$ \textsf{Funding Fee} = {\textsf{Position Value} \times \textsf{Funding Rate}}$$

 

<Funding Fee Settlement Example>

David has a long position of 2 BTC and the current funding rate is +0.02%. The funding fee David has to pay at the funding time is 0.0004 BTC, calculated according to the equation below.

$$ \small\textsf{Funding Fee} = {\textsf{2 BTC} \times \textsf{0.02%}} = \textsf{0.0004 BTC} $$

 

For more information about position value calculation, please go to the Position Value Equation.

 

 

Position Value

The Position Value Equation is used to calculate the trader's current position value.

 

Position Value Calculation Equation

$$ \textsf{Position Value} = {\textsf{Quantity} \over \textsf{Mark Price}}$$

 

<Position Value Calculation Example>

David currently has 20,000 contracts. When the mark price is 10,000 USDT, David's position value is 2BTC according to the equation below.

$$ \textsf{Position Value} = {\textsf{20,000} \over \textsf{10,000}} = \textsf{2 BTC} $$

Premium Index (P)

Premium Index is used to raise or lower the next Funding Rate to maintain the contract price (Last Traded Price) to be aligned to the spot price. This is because the Last Traded Price of the Perpetual Contracts can be traded at a premium* or discount* from the Mark Price.

*Premium: Last Traded Price > Mark Price

*Discount: Last Traded Price < Mark Price

 

Premium Index Equation

$$ \textsf{Premium Index} = {\textsf{(Max(0, Impact Bid Price* - Mark Price) - (Max(0, Mark Price - Impact Ask Price*))}\over\textsf{Spot Price}}+\textsf{Funding Basis} $$

\begin{align}&\scriptsize\textsf{Impact Bid Price* = The average fill price to execute the Impact Margin Notional on the Bid side}\\&\scriptsize\textsf{Impact Ask Price* = The average fill price to execute the Impact Margin Notional on the Ask side}\end{align}

 

 

Interest Rate (I)

The Interest Rate is calculated with the interest on the quote and base index as well as the funding interval.

 

Interest Rate Equation

$$ \textsf{Interest Rate (I)} = {\textsf{(Interest Quote Index - Interest Base Index)}\over\textsf{Funding Interval}} $$

For BTC/USDT Contracts:

\begin{align}&\scriptsize\textsf{*Interest Quote Index = USDT Interest Index}\\&\scriptsize\textsf{*Interest Base Index = BTC Interest Index}\\&\scriptsize\textsf{*Funding Interval = 3 (Every 8 hours, 3 times per 24 hours))}\end{align}