[Gate.io: for beginners] What is the funding rate? perpetual futures contract


Gate.io is one of the world’s most famous cryptocurrency exchanges, with over 10 million users trading daily. Such Gate.io has a funding rate, which is a fee that is incurred when holding a position. The funding rate is also called the swap point, so you should know it.

What is funding rate?

Funding rate refers to the fee incurred when holding a position in perpetual futures trading. It is important that it is a perpetual futures contract. Unlike general futures contracts, futures contracts that do not have a settlement date are called perpetual futures contracts. Since it is a fee that will be charged as long as you hold a position, it is also called a swap point. The funding rate is a fee, but it is possible to receive it as a profit depending on the timing, and it may be necessary to pay. If the funding rate is positive at the time of buying, you can pay a commission, and if the funding rate is negative, you can receive a commission.

What are perpetual futures?

Perpetual futures, as the name suggests, are futures contracts that do not expire. In futures contracts, the price is determined regardless of the spot price, and there is a high possibility that the price will deviate from the spot price in a rapidly volatile market. Therefore, it is possible to obtain stable profits by adjusting the divergence from the spot price using the funding rate in perpetual futures contracts. On the other hand, in general futures contracts, positions are liquidated based on the spot price when maturity comes. In general futures contracts, they often do not deviate from the spot price.

Funding rate mechanism

The funding rate is the commission rate set to minimize the price difference between the leveraged transaction and the virtual currency spot transaction. Therefore, the commission rate is not always constant. The funding rate is determined by the user paying the fees, plus or minus

Funding Rate+
Long PositionreceivePay
Short PositionPayreceive

Why funding rates are set

Why does Gate.io set a funding rate? It exists primarily to balance and stabilize supply and demand. If the market is rising, longs are significantly higher than shorts, so the real market price continues to rise. If this situation continues, the market will become unbalanced. Therefore, by setting the funding rate, when there are many long orders, fees are collected from long position holders, and conversely, when there are many short orders, interest is collected from short position holders, thereby maintaining market balance. .

How the funding fee is calculated

Funding fees are generally calculated as follows:

Funding Fee = Position Value x Funding Rate

Position Value = Contract Quantity / Mark Price

How to check funding rate

To check the funding rate, you must first open an account. Please refer to the article below to open an account.

Let’s log in first. Select perpetual trades from derivatives trades at the top of the screen.

Source : Gate.io

Funding time and its rate are clearly stated as follows. By the way, the funding rate may differ depending on the currency pair.

Source : Gate.io