Gate.io Education | What is the perpetual funding fee?

Funding rates are periodic payments exchanged between long and short traders in the perpetual contract market, aimed at aligning the prices of futures contracts with spot market prices to ensure market stability. When the price of a perpetual contract deviates from the spot price, the funding rate incentivizes traders to take opposite positions, driving the price back toward the spot price. When the funding rate is positive, longs pay shorts; when negative, shorts pay longs.

Components and Calculation of Funding Rates

Funding rates consist of two parts: the interest rate and the premium index. The interest rate reflects borrowing costs and is typically low and stable; the premium index measures the price difference between the perpetual contract and the spot price. When the contract price is above the spot price, the premium is positive, indicating strong buying interest; when it is below, the premium is negative, reflecting strong selling interest. Funding rates are calculated based on these factors, but the calculation methods may vary between platforms.

Market Impact and Application of Funding Rates

Funding rates play a crucial role in the market. They not only help maintain price parity but also reflect market sentiment, encouraging traders to participate. A high positive funding rate typically indicates strong buying sentiment, while a negative funding rate reflects bearish sentiment. Traders can adjust their positions, engage in arbitrage, or use funding rates as a risk management tool. Understanding how funding rates operate is essential for traders to develop effective trading strategies and manage risks.

Gate.io Perpetual Funding Fees

The perpetual funding fee is a mechanism for the exchange of funds between long and short traders, and Gate.io does not charge this fee. The funding fee is used to adjust the cost or profit of the contracts held by traders, keeping the contract price close to the underlying asset price.

Calculation of Perpetual Funding Fees

Funding Fee = Position Nominal Value × Funding Rate
Position Nominal Value = Mark Price × Contract Size (for USDT perpetual contracts)
Funding rates are settled every 4 to 8 hours (UTC 0:00, 08:00, 16:00) at settlement time.

Notes:

• The funding fee calculation does not consider leverage; it is based solely on the current position value.
• When the funding rate is positive, longs pay the funding fee for shorts. When negative, it is the opposite.
• Gate.io settles funding fees three times a day at UTC 0:00, 8:00, and 16:00, based on the position value at those times. If a user does not hold a position at settlement time, they will not participate in the settlement. (For some trading pairs, the funding rate settlement period is 4 hours, resulting in six daily settlements. The funding rate settlement period can be checked on the contract information page.)

  Example

  Assume a user holds a short contract for ETH/USDT with a position value of 23.10 USDT, and the current funding rate is 0.01%, with 12 minutes remaining until settlement time. If the funding rate at the settlement time remains 0.01%, the calculation is as follows:
  Funding Fee = Position Value × Funding Rate
  = 23.10 × 0.01%
  = 0.00231 USDT
  Since the funding rate is positive, the user can receive 0.00231 USDT, while a long user with the same position must pay 0.00231 USDT.

  Notes:

• For some trading pairs, the funding rate period is 4 hours.
• The funding rate settlement period can be found on the contract information page.