Difference Between Funding Rate and Funding Fees in Perpetual Contract Trading

Funding rate and funding fees are two related but distinct concepts in perpetual contract trading.

The funding rate is a measure of the rate current holders should pay or receive to adjust the difference between the perpetual contract price and the underlying index price. It consists of an interest rate and a premium, dynamically adjusted based on market demand and supply. Calculated based on the difference between the perpetual contract price and the underlying asset price, as well as the leverage level used. The funding rate is typically expressed as a percentage and is paid or received at each funding interval, usually every 8 hours on most cryptocurrency exchanges.

Funding fees, on the other hand, are costs calculated based on the funding rate and the position’s nominal value. It is the fee that each user needs to pay or receive during each funding rate settlement period. Funding fees can be positive or negative, depending on the direction of the position and the current funding rate. When the funding rate is positive, long positions need to pay funding fees to short positions, and vice versa, short positions need to pay funding fees to long positions.