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Crypto Derivatives
Futures Contracts
USDT-Ⓜ Futures Contracts
Funding Rate
Binance
2020-06-09 11:21
In this section, we define the Funding Rate, its constituent components, and how it is used.
Purpose of the Funding Rate
The Funding Rate is used essentially to force convergence of prices between the Perpetual Futures Market and the actual underlying commodity.

Why is the Funding Rate Important?
In traditional futures contracts, settlements occur on a monthly or quarterly basis - depending on the contract specifications. At settlement, the contract price converges with the spot price, and all open positions expire. Perpetual contracts are widely offered by crypto-derivative exchanges, and it is designed similar to a traditional futures contract. Albeit, perpetual contracts offer a key difference.
Unlike conventional futures, traders can hold positions without an expiry date and do not need to keep track of various delivery months. For instance, a trader can keep a short position to perpetuity unless he gets liquidated. As a result, trading perpetual contracts are very similar to trading pairs on the spot market.
In short, perpetual contracts never settle in the traditional sense. As such, crypto-exchanges created a mechanism to ensure that contract prices correspond to the index. This is known as Funding Rate.

What is the Funding Rate?
Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. When the market is bullish, the funding rate is positive and long traders pay short traders. When the market is bearish, the funding rate is negative and short traders pay long traders.
Binance takes no fees for Funding Rate transfers; these are directly between traders.
On Binance Futures, Funding occurs every 8 hours at 00:00 UTC; 08:00 UTC and 16:00 UTC. Traders are only liable for funding payments in either direction if they have open positions at the pre-specified funding times. If traders do not have a position, they are not liable for any funding. If you close your position prior to the funding exchange then you will not pay or receive funding.
Important Note: There is up to 15 seconds of delay in the actual charging time of the funding fee. For example, when User A opens a position at 08:00:05 UTC, User A would be liable for the funding fee (either paying or receiving the funding fee).
On Binance Futures platform, funding rates (highlighted in red) and a countdown to the next funding (highlighted in white) are displayed as such:
mceclip0.png
How to Calculate the Funding Amount?
Funding is calculated as:
Funding Amount=Nominal Value of Positions* ×Funding Rate
*Nominal Value of Positions = Mark Price x Size of a Contract

What Determines the Funding Rate?
There are two components to the Funding Rate: the Interest Rate and the Premium. The Premium particular is why the price of the Perpetual Contract will converge with the price of the underlying instrument.
Binance uses a flat interest rate component, with the assumption that holding cash equivalent returns a higher interest than BTC equivalent. The difference is stipulated to be 0.03% per day by default (0.01% per funding interval since funding occurs every 8 hours) and may change depending on market conditions such as the Federal Funds Rate.
There may exist a significant difference in price between the Perpetual Contract and the Mark Price. In such instances, a Premium Index will be used to enforce price convergence between the two markets. The history of the premium index can be viewed here. It is calculated separately for every instrument, and the formula is below:
Premium Index(P)=Max(0, Impact Bid Price−Spot Price)−Max(0, Spot Price−Impact Ask Price)/Spot Price
Impact Bid Price=The average fill price to execute the Impact Margin Notional on the Bid Price
Impact Ask Price=The average fill price to execute the Impact Margin Notional on the Ask Price
The Impact Margin Notional (IMN) is the notional available to trade with 2000 USDT worth of margin (i.e. 2000 USDT / Initial Margin); at default levels, this is 40,000 USDT. This is used to determine how deep in the order book to measure either the Impact Bid or Ask price.
Refer here for information about Leverage and Margin of USDT Futures Contracts
For example: If the trader makes no selection on leverage, the default leverage of BTCUSDT perpetual contract is 20x, and its corresponding Initial Margin is 5%, then the Impact Margin Notional (IMN) is 40,000 USDT (2000 USDT / 5%), and the system will take an IMN of 40,000 USDT every minute in the order book to measure average Impact Bid/Ask price.
How to calculate the Impact Bid/Ask Price?
Given the bid side order book below:
If multiplier *∑px*qx > IMN in level x and multiplier * ∑px-1*qx-1 < IMN in level x-1, then we can get the impact bid price from level x order book.
Impact bid price =IMN/( (IMN-multiplier *∑px-1*qx-1)/px+multiplier * ∑qx-1)
*IMN: Impact Margin Notional
To get the Impact Bid/Ask Price Series, the system performs the above methodology over the order book snapshots in this funding period.
Take an example:
The ask order book summarised as below:
*BTCUSDT perpetual contract default Impact Margin Notional
From the table above we get following figures:
  • Price at Level x-1 is 11410.50
  • Accumulated quote notional quantity at Level x is 14456.38
  • Accumulated base quantity at Level x-1 is:0.499 + 0.008 + 0.616 +0.079 + 0.065 = 1.267
Substituting into the formula:
Impact ask price =IMN/( (IMN-multiplier *∑px-1*qx-1)/px+multiplier * ∑qx-1)
= 40,000 / ((40,000 - 14456.38 )/ 11410.54 + 1.267)
= 11409.0131 USDT
Analysis as follows:
  • The corresponding quantity when it reaches NIM at Level x:(IMN-multiplier *∑px-1*qx-1)/px = (40,000 - 14456.38 )/ 11410.54 = 2.239
  • Accumulated base quantity when it reaches NIM :2.239 + 1.267 = 3.506
  • Impact bid price = 40,000 / 3.506 = 11409.0131 USDT
How to calculate Premium Index and Funding Rate?
Binance calculates the Premium Index every minute, and takes a Time-weighted average across all indices to the Funding Time (every 8 hours).
Click to view Premium Index History
The Funding Rate is then calculated with this 8-Hour Interest Rate Component (0.01%) and the 8-Hour Premium Component. A +/- 0.05% damper is also added. For example, the Funding Rates calculated from 00:00 - 08:00 is exchanged at 08:00.
Click to view Funding Rate History
The Funding Rate formula itself is:
Funding Rate (F) = Premium Index (P) + clamp(0.01% - Premium Index (P), 0.05%, -0.05%)
*Premium Index (P) here is referring to the current average
The function clamp(x, min, max) means if (x < min), then x = min; if (x > max), then x = max; if max ≥ a ≥ min, then return x.
In other words, as long as the Premium Index is between -0.04% to 0.06%, the Funding Rate will equal 0.01% (the Interest Rate).
If (Interest Rate (I) - Premium Index (P)) is within +/-0.05% then F = P + (I - P) = I. In other words, the Funding Rate will be equal to the Interest Rate.
Example 1:
Time stamp:2020-08-27 20:00:00 UTC
Price Index:11,312.66USDT
Impact Bid Price:11,316.83 USDT
Impact Ask Price:11,316.80 USDT
Premium Index(P)=Max(0, Impact Bid Price−Spot Price)−Max(0, Spot Price−Impact Ask Price)/Spot Price
=(Max(0, 11,316.83 - 11,312.66) - Max(0,11,312.66 - 11317.66) / 11587.01
= (4.1778 - 0) / 11,312.66
= 0.0364%
*Please be noted that in this example we are within the funding period UTC 16:00 - 24:00, the actual Premium Index at UTC 20:00 need to be taken from time-weighted average across all indices to within UTC 16:00 - 20:00 funding period.
Example 2:
Time stamp:2020-08-28 08:00:00 UTC
Mark Price:11,329.52
This is the end of the funding period UTC 00:00 - 08:00, 8 hours = 480 minutes, so 8-hours weighted average Premium Index(P) = 0.0429%
Average Premium Index = (1*Premium_Index_1+2*Premium_Index_2+3*Premium_Index_3+···+·480*Premium_index_480)/(1+2+3+···+480)
*Premium_Index_1: the premium index at first minute
Funding Rate (F) = Premium Index (P) + clamp(0.01% - Premium Index (P), 0.05%, -0.05%)
= 0.0429% + Clamp(0.001% - 0.0429%,0.05%, -0.05%)
= 0.0429% + (-0.0329%)
= 0.0100%


How to Access Both Real-Time and Historical Funding Rate
Now, you can access both real-time and historical funding rate. Click “Information” and go to “Funding Rate History”. Alternatively, you can directly visit https://www.binance.com/en/futures/funding-history/0.
New version of trading interface:
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Old version of trading interface:
mceclip2.png

Real-Time Funding Rate:
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Funding Rate History:
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