Funding Rate and Funding Fee

Announcements Funding Rate and Funding Fee

2022-08-17 22:04:09 UTC 180029 Read

[//]:content-type-MARKDOWN-DONOT-DELETE
## Funding Rate
Gate.io perpetual contracts use the "funding rate" mechanism to balance the long and short demand and to anchor the contract trading price with the mark price.

Gate.io’s funding rate mechanism works like that: Calculate the funding rate every minute, and take the value averaged over a certain period (8 hours) as the prevailing funding rate for that period. For example, the funding rate used at 16:00 is the value calculated for the period from 8:00 to 16:00. Funding rate can effectively reflect the long and short demands in a rapidly changing market.

### Funding Rate Calculation

The calculation of the funding rate mainly takes account of the interest rate difference between the denomination currency and the settlement currency, as well as the basis difference between the book trading price and the external spot price (ie, the premium index).

Note: If the ratio of price deviation exceeds the margin maintenance ratio of the contract, the market is considered to be in an abnormal state. In this case, the price difference is not considered when calculating the funding rate. Instead, the settlement will be done according to the default value (0.01%). The margin maintenance ratio can be checked on the [Contract Information page.](https://www.gate.io/futures_info_new/futures/usdt/BTC_USDT#baseinfo "Contract Information page.")

The calculation formula is as follows:

Funding rate = premium index + clamp (interest difference - premium index, 0.05%, -0.05%)

Gate.io futures has a preset interest rate of 0.03% per day, with an interest difference of 0.01% if the fee settlement is applied every 8 hours, and so on.

clamp is an interval-limiting function, and the final funding rate is: clamp (8-hour average, fmax, -fmax)
Wherein, fmax = (Initial Margin - Maintenance Margin) x 75%

Premium Index = [ Max (0 , Impact Bid Price - Index Price) - Max (0 , Index Price - Impact Ask Price) ] / Index Price
You can check the premium index on the [Contract Information page](https://www.gate.io/futures_info_new/futures/usdt/BTC_USDT#baseinfo "Contract Information page").

For fmax, the parameter 75% is the default value. In case of extreme market conditions, Gate.io reserves the right to adjust the upper and lower limits of the funding rate with prior announcement.

### Example
You can check the real-time funding rate on the Contract Trading page and Contract Information page. Funding rates are not fixed and are updated every minute.

![](https://gimg2.gateimg.com/image/article/1665217653WX20221008-162701@2x.png)

As shown below, the current real-time funding rate is 0.0093%, and there are still 7 hours, 33 minutes and 8 seconds to go until the settlement.
![](https://gimg2.gateimg.com/image/article/1665217672WX20221008-162720@2x.png)

As shown above: You can also view the "Real-time Funding Rate" and "Funding Rate History" on the [Contract Information page.](https://www.gate.io/futures_info_new/futures/usdt/BTC_USDT#baseinfo "Contract Information page.")

## Funding Fee
Gate.io uses funding fee to anchor the contract price with the spot price. It works to narrow the price difference between the perpetual contract and the corresponding spot, and keep the contract trading price consistent with the mark price.

### Calculation of Funding Fee

Funding Fee = Position Value * Funding Rate
For the calculation of position value, please refer to [Position Value Calculation](https://www.gate.io/help/futures/futures/22147/calculation-of-position-value "Position Value Calculation").

**Notes:**

1. The fund fee calculation does not take into account leverage, that is, the calculation will be made based on current position value only, without considering the leverage.
2. At Gate.io, fund fees will be settled three times a day, respectively at  0:00, 8:00, and 16:00 UTC time. So it does not apply to the users that do not hold a position at these three points of time.
3. Funding fees are payments made between the long and short sides in order to balance the contract price. If the contract price is much higher than the spot price, the funding rate is positive, and the long pays the short; if the contract market price is much lower than the spot price,  the funding rate is negative, then the short pays the long.
4. Funding fees are not paid to the Gate.io platform. Instead, it is a payment made directly between the long and short, and the platform does not charge any fees either.

### Example
![](https://gimg2.gateimg.com/image/article/1665218867WX20221008-164727@2x.png)
![](https://gimg2.gateimg.com/image/article/1665219619WX20221008-165952@2x.png)

As shown above, the user holds an ETH/USDT short contract. The value of the position is 455.57 USDT, the settlement funding rate is 0.01%, and there are still 7 hours, 12 minutes and 40 seconds to go until the settlement.

According to the formula, the fund fee of the current position at the settlement time will be:
Funding Fee = Position Value x Funding Rate 
= 455.57 x 0.01%
= 0.045557 USDT

Since the funding rate is positive, the long pays the short. If the user shorts the contract,  the user will receive a funding fee of 0.045557 USDT, while the user who holds the same position on the long side will pay a funding fee of 0.045557 USDT.

Gate.io reserves the final right to interpret the product.

Select language and region

Fiat Currencies