Funding Rate

1. What is the Funding Rate?

Funding rates are periodical cash flows exchanged between long- and short-position holders. The absolute amount per lot will be based on the difference between the perpetual Futures and index prices. When the market is bullish, the funding rate is usually positive. Traders with long positions will pay traders on the short side. Conversely, the funding rate will usually be negative when the market is bearish, and traders with short positions will pay traders on the long side.

Please note that IBIT only helps facilitate the exchange of funding amounts between long- and short-position holders. IBIT does not charge any service fees.

 

2. Why is the Funding Rate Important?

Unlike traditional Futures, perpetual Futures contracts have no expiration date. Traders can hold their positions perpetually unless they are liquidated. To ensure perpetual contracts’ prices correspond to their underlying markets, crypto exchanges created a mechanism known as the Funding Rate.

The funding rate helps perpetual contracts’ prices converge to the underlying asset's price. With sufficient liquidity, trading perpetual contracts are similar to trading in the spot market.

As such, crypto exchanges created a mechanism to ensure that perpetual contract prices correspond to the index. This is known as the Funding Rate.

 

3. How are Funding Rates calculated on IBIT?

Funding Amounts are calculated using the following formula:

Funding Amount = Nominal Value of Positions * Funding Rate

Where

• Nominal Value of Positions = Mark Price * Size of a Contract (for USDⓈ-Margined contracts)
• Contract Multiplier * Size of a Contract/Mark Price (for Coin-Margined contracts)

4. Funding Rates Settlement

Funding payments with a settlement frequency of every eight hours occur at 00:00 (UTC), 08:00 (UTC), and 16:00 (UTC). 

For a better user experience, we will calculate funding fees without pausing trading. Therefore, there may be delays in fee charging and distribution times. For example:

• Traders opening or closing positions at 08:02:00 may be charged or paid funding fees.
• Traders holding positions at 08:00:00 but closing them at 08:02:00 may not have their fees deducted or paid if the snapshot was not successful.

 

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