l The purpose of funding is to promote a better following to index prices by means of funding compensate between longs and shorts.
l Collection: Funding is exchanged between longs and shorts every eight hours, respectively at UTC 4:00, UTC 12:00 and UTC 20:00. Only when you hold a position at these points in time you will pay or receive the funding. If the position is closed before the charging time, no funding shall be paid or received.
l When the funding is positive, long pays short. When the funding is negative, short pays long.
Funding Rate Calculation
l The funding you pay or receive:
Funding = Position Value* Funding Rate
Your position value is not related to the leverage. For example, if you hold 100 BTCUSD contracts, you will pay or receive funding according to the nominal value of these contracts, not based on how much margin you have allocated to the position.
l Funding rate consists of two parts: interest rate and premium/discount. This rate is designed to ensure that the transaction price of a perpetual contract keeps up with the underlying reference price. In this way, a perpetual contract is similar to a spot market in margin trading, where buyers and sellers exchange funding rate on a regular basis.
Interest Rate Component
l Each contract consists of two currencies: a base currency and a quote currency. For example: for BTCUSD, the base currency is BTC, and the quote currency is USD. Interest rate is the function of interest rate between the two currencies.
Interest Rate (I) = (Quote Interest Rate Index - Base Interest Rate Index) / Funding Rate Interval
Base Interest Rate Index = Lending Rate of the Base Currency
Quote Interest Rate Index = Lending Rate of the Quote Currency
Funding Rate Interval = 3 (because funds are generated every 8 hours)
l Sometimes the price of a perpetual swap contract may trade at a significant premium or discount to the mark price. In those situations, a Premium Index will be used to raise or lower the next Funding Rate to levels consistent with where the swap contract is trading. The Premium Index of each swap contract can be found on the detailed page of the relevant contract. It is calculated as follows:
Premium Index (P) = (Max (0, Impact Weighted Purchase Price - Mark Price) - Max (0, Mark Price - Impact Weighted Sale Price) / Spot Price + Fair Basis of Mark Price
Final Funding Rate Calculation
l CoinBene calculates the Premium Index § and Interest Rate (I) every minute, and then calculates the weighted average of minutes every 8 hours.
The Funding Rate is next calculated with the 8-Hour Interest Rate Component and the 8-Hour Premium / Discount Component. A +/-0.05% dampener is added.
Funds Rate (F) = Premium Index (P) + clamp (Interest Rate (I) - Premium Index (P), 0.05%,-0.05%)
Therefore, if (I-P) is within +/-0.05%, then F = P + (I-P) = I. In other words, the Funding Rate will be equal to the Interest Rate.
l The calculated Funding Rate is then applied to your position value to determine the Funding Amount to be paid or received at the Funding Timestamp.
Funding Rate Caps
CoinBene caps on the Funding Rate to ensure the maximum leverage can still be utilized. To do this, two caps are imposed:
The absolute Funding Rate is capped at 75% of the Initial Margin - Maintenance Margin. If the Initial Margin is 1% and the Maintenance Margin is 0.5%, the maximum Funding Rate will be 75% * (1% - 0.5%)= 0.375%.
The Funding Rate may not change by more than 75% of the Maintenance Margin between Funding Intervals.
CoinBene does not charge any fees on funding. It is exchanged directly peer-to-peer.