If you know the concept and calculation method of the funding fee, you can maximize profits, minimize losses, and prepare for liquidation risks, and above all, you can devise profit strategies using the funding fee.
I will explain this in an easy and simple way so that you can understand it with just this one article, so please read slowly!
If you're reading this and thought of the funding fee as a 'type of fee' that needs to be paid or received at specific times and rates, then you only know 'half' of what the funding fee really is.
To put it simply, it's often the case that you get liquidated and lose all your seed money because of this funding fee. If you're not careful, you could get liquidated, so you shouldn't just think of it as a fee.
It's not a difficult concept at all, so I hope that through this article, you thoroughly understand the meaning and calculation method of the funding fee, as well as the funding fee times of the exchanges. Also, I recommend checking the last part where I explain how to save on fees.
< Table of Contents >
What is the funding fee (Funding Rate)?
How to calculate the funding fee
Exchange Funding Fee Times
What is the funding fee (Funding Rate)?
Basically, there are two options in futures trading.
One is a long position betting on the rise of the coin price, and the other is a short position betting on the fall of the coin price.
Here, a person holding a long or short position has to pay a certain percentage of the amount invested to the person holding the opposite position, and this 'certain percentage' is what we call the funding fee.
If you have read this far, you might be thinking, 'Why do I have to pay the funding fee?', as just holding a position already incurs a fee, making it feel like you're paying a fee again unnecessarily.
The reason for the existence of the funding fee and funding fee system is to prevent the phenomenon of 'excessive skewing towards a specific position.' Since coin futures are perpetual derivatives, if many people maintain a specific position indefinitely, it can disrupt market balance and negatively affect the spot price.
You might have caught on to who is giving and receiving the funding fee here. The side with more positions pays the funding fee to the opposite side.
1) Long Position Ratio > Short Position Ratio
In this case, the long position pays the funding fee to the short, and on the trading screen, the funding fee is displayed as positive (+).
2) Long Position Ratio < Short Position Ratio
Conversely, in this case, the short pays the funding fee to the long, resulting in a negative (-) funding fee on the trading screen.
There are many long positions.
→ Many people believe that the coin price will rise (+).
→ The funding fee is positive (+).
You might find it convenient to think like that, right? You can think the opposite as well if there are many short positions.
Having understood the concept of the funding fee, let's now look at how the actual funding fee is calculated.
How to calculate funding fees
The funding fee and its calculation method are simple, as follows.
Funding Fees = Funding Fee, Position Value = Position Size, Funding Rate = Funding Fee
Funding Fee = Position Size X Funding Fee
Here, the position size is calculated by multiplying the trading amount (or investment amount) by the leverage ratio.
Actually calculating it would be the easiest way to understand, so let's assume a trading amount of 1,000 USDT, a leverage ratio of 20, and explain it by dividing it into cases where the funding fee is positive and negative.
When the funding fee is +0.01% (positive)
1,000 USDT X 20 X 0.01% = 2 USDT can be calculated,
Since you're in a long position and the funding fee is positive, in this case, you will pay a funding fee of 2 USDT.
When the funding fee is -0.02% (negative)
1,000 USDT X 20 X 0.02% = 4 USDT
So when calculated, and since it's a negative funding fee, if you took a long position, you would receive 4 USDT in funding fees.
The calculation of this funding fee is multiplied by the leverage ratio, and if you hold a position, it continuously occurs at certain times, so you shouldn't just think about the funding fee number easily. Especially due to reason 2, you need to know the times for giving and receiving the funding fee.
This is because there are cases where you can get liquidated while paying the funding fee after holding a position for a long time. Therefore, let's find out about the funding fee times of the exchanges.
Exchange Funding Fee Times
Speaking of the funding fee times for the most commonly used exchanges like Binance, Bybit, and Bitget,
All three exchanges adjust the funding fee every 8 hours, and the funding fee occurs simultaneously. The exact times are as follows: 01:00, 09:00, 17:00 (Korean time)
Since it's an 8-hour interval, it wouldn't matter much if you maintain a short position, but if you happen to hold a position at the time the funding fee occurs, you need to consider this when setting your position strategy.
Finally, I would like to share an additional way to receive a discount on fees. By signing up through the link provided here, you can receive a whopping 20% discount on fees. It's a great deal without any hassle, so it's good to take advantage of it!
📍Binance 20% Fee Discount Link
And existing subscribers can receive a 20% discount on fees if they meet the following two conditions.
1. The invited person has not previously accepted an invitation.
2. The invited person has not traded on the Binance platform or used any products in the last 180 days.
If both conditions are met, take advantage of the fee discount!
Today, I summarized the meaning and calculation of the funding fee, which is an essential concept in cryptocurrency futures trading.