What is funding mechanism?
Our funding mechanism is designed to improve the correlation between perpetual future prices and the Underlying Market of the given future. Funding is a payment made between long and short position holders to maintain this correlation. You will either receive or pay funding depending on your open positions.
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If the perpetual futures contract is trading at a premium, i.e., when the Mark Price is higher than the Index Price, long positions holders pay the Funding Amount quoted in the Settlement Asset to short position holders every hour.
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Conversely, if the perpetual futures is trading at a discount, i.e., when the Mark Price is lower than the Index Price, short positions holders pay the Funding Amount to long position holders.
How to calculate funding?
The Funding Amount payable by one counterparty to another is determined by the funding rate multiplied by the Notional Value of their positions.
Funding Amount = Funding rate x Notional Value of position(s) in Settlement Asset
What is funding rate?
The funding rate, calculated on an hourly basis, is the relative excess of Mark Price over the Index Price. The main purpose of funding rate is to align the prices of perpetual futures contracts with the Underlying Market and incentivize market equilibrium.
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.
How is funding settled?
The Bullish settlement mechanism that occurs every 1 hour is designed for mark-to-market profits or losses and funding amounts to be debited or credited to your accounts.