Funding Rate Explained in Perpetual Futures

What is the funding rate?

The funding rate represents the difference between the mark price of the perpetual futures market and the index price, which is equivalent to the spot market of the underlying asset. The funding rate ensures that the funding mechanism aligns the futures market price with the index price.

When the funding rate is positive, users with long positions pay a funding fee to those with short positions. When the funding rate is negative, users with short positions pay a fee to those with long positions.

But what does this mean for DexToro as a decentralized perpetual futures exchange?

The funding rate in perpetual futures is a fee paid regularly (usually every eight hours) to align the contract price with the spot price, determined by the difference between futures and spot prices. So, who pays the funding rate?

The funding rate is paid by one side and transferred periodically to the other side, typically every 4 or 8 hours, based on market conditions. If you're in a long position and paying the funding rate, the short trader receives the funding fee.

Funding on DexToro

DexToro uses a method called "Funding Rate Velocity" to figure out how fees work on the blockchain. Unlike traditional methods, it adjusts fees regularly based on how many traders are buying or selling. This helps make the fees more stable over time.

How it works?

Funding isn't directly tied to the imbalance of long and short positions. If significant traders trade rapidly, your funding may change later. Even with an equal number of buyers and sellers (neutral skew) The skew influences funding rate velocity:

To learn more check our DexToro Documentation on Funding Rate

Funding Rate | DexToro Documentation

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