Compare Crypto Funding Rates in January 2023

A crypto perpetual contract is a futures contract without an expiry date. Crypto perpetuals work on a mechanism called crypto funding rates, which makes them viable for trading in the market. In this article, we’ll delve into the meaning and various aspects of crypto funding rates. We’ll also learn how and where to make money off them, their calculation, and more.

In a traditional crypto futures contract, two traders agree to buy and sell a crypto asset on or before a future date. No matter when the contract is settled, its price remains the same as that crypto’s spot rate on the date of opening the contract.

Quick Sip

Spot Rate or Spot Price: The spot rate or spot price is the price of a crypto asset in a transaction involving immediate payment and delivery of that asset. It’s called spot rate because the transaction is settled immediately, "on the spot", without any delay.

Let’s say you buy a BTC futures contract today at $20,000 and settle it on a future date when the BTC spot rate has risen to $22,000. Your settlement rate will remain $20,000 as agreed, thus earning you a $2,000 profit. You can close this contract before its expiry by setting up what's known as an inverse sell BTC contract. Otherwise, the exchange will close it automatically upon expiry.

A crypto perpetual contract, also called a perp, perpetual swap, or just perpetual, works quite like a futures contract but doesn’t have an expiry date. This means you can hold on to it for as long as you like. This flexibility makes perpetuals more popular than conventional futures contracts.

Crypto perpetuals work based on a price anchoring mechanism called funding rates.

• What are Crypto Funding Rates?

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  In a traditional futures contract, the contract’s price automatically moves closer to the spot price as the expiry date approaches. Since crypto perpetual contracts don’t have an expiry date, their prices tend to deviate from the spot prices, depending on the market conditions.

  Hence, if the market sentiment is bullish, the perpetual’s price is normally higher than the spot price, and vice versa. Funding rates are used to keep the crypto perpetuals’ prices closer to their corresponding spot rates.

  A crypto funding rate is a small percentage of your position’s value that you must pay to or receive from your counterparty at regular intervals. Most exchanges keep funding rate payment intervals of 1, 4, or 8 hours.

  The funding rate is positive if the perp’s price is higher than the spot rate. It indicates higher demand for perp contracts in the market. In this case, longs will pay funding fees to shorts, thus incentivizing opposing positions and pulling the perp’s price closer to the spot rate.

  It would be the opposite in a negative funding rate scenario. Shorts will pay longs, thus pulling up the perp’s price closer to the spot rate.

  Crypto funding fee = nominal value of your position x funding rate

  Since funding rates keep perpetuals’ prices closer to spot rates, you can trade crypto perps just like crypto spot. However, unlike the spot market, you can take both short and long positions in perps and also use leverage.

  A Positive Crypto Funding Rate Means:

  • Crypto perp price is higher than the crypto spot rate.
  • Crypto perp traders who are long have to pay the funding rate to traders who are short.

  A Negative Crypto Funding Rate Means:

  • Crypto perp price is lower than the crypto spot rate.
  • Crypto perp traders who are short have to pay the funding rate to traders who are long.

  If a crypto perpetual’s funding rate is positive and you open a long position hoping that its price will go further up, you’ll need to pay a funding fee to your short counterparty for your open trade. This funding fee will be payable for as long as your long position stays open.

  On the other hand, if a crypto perpetual’s funding rate is negative and you open a short position expecting a further fall in its price, you’ll need to pay a funding fee to your long counterparty. The funding fee will need to be paid for as long as your short position remains open.

Crypto perpetual trading pairs like BTC-USDT, ETH-USDT, ETH-USDC, etc., tell you about the asset you can use as margin to open your long/short positions. So, BTC-USDT suggests that you must deposit margin in USDT stablecoin to open a long/short BTC perpetual contract. The trading pairs offered may vary from exchange to exchange.

The exchange you use for your crypto perpetual trades will depend on multiple factors, including your state or country, transaction fees, margins, personal preferences, and trading strategy. For example, some countries like the UK and US have strict regulatory restrictions on derivatives trading.

Please note, the equations to calculate fees may seem complicated. However, you’re not required to actually know them for trading purposes. In a real-time trading environment, they’re all calculated and shown to you on the dashboard.

Let’s look at some of the top exchanges for perpetual trading.

1. Binance

Binance has a tiered fee structure, with trading fees ranging from 0.04% to 0%, depending on 30 day-trading volumes and BNB balance. It calculates and pays out funding fees every 8 hours.

Funding Fee = Nominal Value of Positions x Funding Rate

Nominal Value of Positions = Mark Price x Size of a Contract

Funding Rate (F) = Average Premium Index (P) + Clamp (Interest Rate – Premium Index (P), 0.05%, -0.05%)

The maintenance margin rate, maintenance amount, and maximum leverage change with increasing position value. These figures may also vary based on the crypto asset and trading pair.

Leverage and Maintenance Margin Table for BTC-USDT Perpetual. Source: Binance.com

Read our full Binance review, or start trading perpetuals on Binance.

2. ByBit

On ByBit, the crypto funding rates are recalculated and paid out every 8 hours.

Funding Fee = Position Value x Funding Rate

Position Value = Quantity of Contract / Mark Price

Funding Rate (F) = Premium Index (P) + Clamp (Interest Rate (I) – Premium Index (P), 0.05%, -0.05%)

The trading fee ranges from 0.06% to 0% and can be reduced by increasing your monthly trading volume and through the platform's loyalty VIP program.

The maintenance margin, initial margin, and maximum leverage may differ from crypto to crypto and between different trading pairs. ByBit follows a dynamic leverage concept for mitigating risks. This means that the larger the position value, the lower the maximum leverage allowed.

Leverage, Initial Margin, and Maintenance Margin Table for BTC-USDT Perpetual.  Source: ByBit

Read our full ByBit review, or start trading perpetuals on ByBit.

3. dYdX

dYdX is a decentralized crypto exchange that offers 40+ crypto perp trading pairs with different leverage ranges, and initial margin and maintenance margin requirements. For the BTC-USD trading pair, the initial and maintenance margin requirements are 5% and 3%, respectively. The initial margin stays at 5% until 25 BTC and increases linearly by 1% per 5 BTC increment in the position size. The maximum leverage usable is 20x.

No trading fee is charged to users with a 30-day trading volume below $100,000. It may vary from 0.05% to 0% for users with higher trading volumes. dYdX offers fee discounts of up to 50% to traders who hold the platform’s native NFT assets called Hedgies.

The funding rate is calculated on an 8-hour basis but is paid out every hour in USDC tokens. It’s calculated as follows:

Funding Fee = Size of the Position (S) x Index price for the market supplied by Oracle (P) x Funding Rate (R)

Funding Rate = (Premium Component / 8) + Interest Rate Component

Read our full dYdX review, or start trading perpetuals on dYdX.

4. BitMEX

Like most exchanges, the funding rate is calculated and paid out every 8 hours on BitMEX. The funding fee and funding rate are calculated as follows:

Funding Amount = Mark Value x Funding Rate

Funding Rate (F) = Premium Index (P) + Clamp (Interest Rate (I) - Premium Index (P), 0.05%, -0.05%)

BitMEX charges a fee of 0.075% on trades that remove liquidity from the market. However, you can use up to a 71.6% fee discount based on your 30-day average daily trading volume and tier level.

The maintenance and initial margin requirements increase with the position size. The new margin requirements are calculated as follows:

New Maintenance Margin % = Base MM % + (Steps x Base MM %)

New Initial Margin % = Base IM % + (Steps x Base MM %)

Maintenance Margin Amount = New MM x Entry Value

BitMEX allows up to 100x leverage on some of its crypto perpetual contracts.

Start trading perpetuals on BitMEX.

5. OKX

On OKX, your trading fee may vary from 0.05% to -0.010% depending on your total OKB token holdings, 30-day trading volume, total assets balance, and user level. The funding fee is charged and paid every 8 hours, calculated as shown below:

Funding Fee = Position Value x Current Funding Rate

Funding Rate = Clamp (MA (((Best Bid + Best Offer)/2 - Spot Index Price)/Spot Index Price-Interest), a, b)

The "a" and "b" values are as follows:

The maintenance and initial margin requirements differ from trading pair to trading pair. The maximum leverage decreases with increasing position value.

Source: OKX.com

Start trading perpetuals on OKX.

6. Gate

Gate levies a 0.075% trading fee on perpetual contracts, with tier-based discounts available to users. The fee is charged based on your total position value, regardless of the leverage. The funding rate is calculated every minute and averaged out every 8 hours for charging and payment purposes.

Funding rate = Premium index + Clamp (0.01% - Premium index, 0.05%, -0.05%)

Funding Fee = Position Value x Funding Rate

The initial and maintenance margin requirements increase with position size. For instance, for the BTC-USDT pair, the initial and maintenance margins remain at 1% and 0.5%, respectively, for position sizes of up to 1,000,000 USDT. Beyond that, these margins increase at the rate of 0.5% each, with every 1,000,000 USDT increment in position size.

Please note these margin increments may vary from trading pair to trading pair.

Initial Margin, Maintenance Margin, and Leverage details for BTC-USDT perpetual. Source: Gate.io

For the BTC-USDT position, you can use leverage up to 30x. For 30x leverage, your initial and maintenance margin requirements would be 15.5% and 15%, respectively, based on calculations shared earlier.

Start trading perpetuals on Gate.

7. BitGet

BitGet exchange charges a maker and taker trading fee of 0.02% and 0.06%, respectively, on crypto perpetual trades. The funding rate and funding fees are calculated on an 8-hour basis.

Funding Fee = Funding Rate x Position Value

Funding rate (F) = Premium index (P) + Clamp (Interest Rate (I)-Premium Index (P), 0.05%, -0.05%)

You can use a maximum leverage of 125x, with maintenance margin increasing with a corresponding increase in position size. As shown in the table below, the starting maintenance margin ratio is 0.4% for BTC-USDT perpetual contracts of up to 5000 USDT. It can go up to 49.5% for contract sizes of 9,700,001 USDT to 49,500,000 USDT.

Here’s a table that can give you an idea of how the MMR changes with respect to contract size.

Start trading perpetuals on BitGet.

8. CoinEx

On CoinEx, your trading fees may range from 0.05% to 0.02% depending on your user level and current CET (CoinEx’s native token) holdings. The funding rate is calculated every minute and is averaged and paid out every 8 hours.

Funding Fee = Position Value x Funding Rate

Funding Rate = Clamp (MA (((Impact Bid Price + Impact Mark Price) / 2-Spot Price) / Spot Price - Interest), a, b)

The maintenance margin and initial margin rates increase with position size. You can use a maximum leverage of 100x on CoinEx. However, this may change based on the trading pair.

Start trading perpetuals on CoinEx.

9. Deribit

Deribit crypto exchange charges a maker and taker trading fee of 0% and 0.05%, respectively, on crypto perpetuals. Like most of its peers, the funding rate is calculated and paid out every 8 hours. The funding rate calculation is as follows:

Funding Payment = Funding Rate x Position Size x Time Fraction

Funding Rate = Maximum (0.05%, Premium Rate) + Minimum (-0.05%, Premium Rate)

Time Fraction = Funding Rate Time Period / 8 hours

Premium Rate = ((Mark Price – Deribit Index) / Deribit Index) x 100%

Deribit allows a maximum leverage of 50x on crypto perpetuals, with USDC being the main margin currency for linear contracts. The initial and maintenance margin requirements are different for different trading pairs. Additionally, the margin requirements increase with position size.

This table shows these requirements for the BTC-USDC perpetual contract. You can find similar details for other perp trading pairs, here.

Read our full Deribit review, or start trading perpetuals on Deribit.

10. Huobi

Huobi is a centralized crypto exchange that offers a wide range of USDT and coin-margined crypto perpetual contracts. The trading fees range from -0.015% to 0.05% depending on your 30-day trading volume.

The funding rate is paid out every 8 hours and is computed using the following formula:

Funding = Net Position x Contract Face Value x Settlement Price x Funding Rate

Estimated Funding Rate of Next Period = Clamp (average premium index + clamp (comprehensive interest rate – average premium index, premium deviating from upper limit, premium deviating from lower limit), upper limit of funding rate, lower limit of funding rate)

As per a September 2022 update, the exchange has revised its maximum leverage for all crypto perpetual contracts to 50x.

The platform calculates a position’s margin requirement using the following formula:

Position Margin = Face Value x Position Amount x Last Price / Leverage

It uses a tiered margin system to adjust the usable margin in accordance with the account equity and leverage.

Start trading perpetuals on Huobi.

11. Kraken

The crypto perpetuals trading fee on Kraken may range from 0.05% to 0% based on 30-day trading volume.

Starting Sept. 29, 2022, all funding rates are calculated and paid on an hourly basis. The funding rate is computed as time-weighted average premium, standardized to per-hour. It has a permissible range of -0.25% to +0.25%. Once the average premium is calculated, it is weighted by a Funding Rate Multiplier, a coefficient set to the value of "24."

You can use a maximum 50x leverage on your trades. The margin levels may vary depending on whether you’re trading inverse perps or linear perps. Each linear perpetual contract has a margin category which can vary from Class A to Class E, with the former offering the highest leverage and the latter the lowest.

Source: Kraken.com

For the BTC-USD trading pair, since it falls in Class A, you can use up to 50x leverage, with initial and maintenance margins starting at 2% and 1%, respectively. The margin requirements may go up to 50% and 25%, respectively, for position sizes exceeding $30 million.

Read our full Kraken review, or start trading perpetuals on Kraken.

Crypto exchanges need funding rates to ensure that crypto perpetual prices stay close to crypto spot prices at all times. Since perpetuals don’t have an expiry date, this mechanism is necessary for their functioning.

• What Determines the Funding Rate?

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  Different crypto derivative exchanges have different ways of calculating funding rates. It’s determined based on two important components — interest rate and premium.

  Premium quantifies a crypto perpetual’s price deviation from the spot rate. The interest rate, on the other hand, is a constant that depends on the crypto asset.

• What Does a Funding Rate Mean For Traders?

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  As a crypto trader, you should know what funding rate means and how to use it to your advantage. A positive funding rate means that a crypto perp’s price is higher than the spot rate, and going short will earn you a funding fee. A negative funding rate indicates that the crypto perp price is lower than spot rate, and there is a potential to earn funding fees by going long.

  Let’s say an ETH perp is trading at $22,000 on Exchange A against $20,000 in spot market, and the funding rate is 0.008%. Assume all these figures stay unchanged over the next 24 hours, with funding fees paid hourly. You can open a short position in the ETH perp market, with a $2,200 margin(initial deposit to open the trade), and earn:

  Without leverage = ($2,200 x 0.008%) x 24 = $4.224 per day.

  With 10x leverage = $42.24 per day

• How Are Crypto Funding Rates Related to Market Sentiment?

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  Crypto funding rates are generally found to reflect the prevailing market conditions. While higher positive funding rates are indicative of a bullish market sentiment, higher negative funding rates point towards a bearish trend. Most perp traders are found longing cryptos during bull markets and shorting in bear markets.

  How high or low the funding rate is also shows the perpetual contract’s price deviation from the corresponding spot rate.

Arbitrage

This strategy involves banking on crypto funding rate discrepancies on different exchanges. Let’s say, SOL funding rates are 0.06% and -0.03% on Exchange A and B, respectively, paid every 8 hours. It means that every 8 hours, longs will pay a funding fee to shorts on Exchange A and vice versa on Exchange B.

Assume you have $20,000 to invest, and the funding rate stays the same for 24 hours.

On Exchange A

As the funding rate is positive, you open a short position with $10,000 margin. Your daily earnings:

Without leverage = ($10,000 x 0.06%) x 3 = $18

With 5x leverage = $90

With 10x leverage = $180

On Exchange B

Since the funding rate is negative, you open a long position with $10,000 margin. Your daily earnings:

Without leverage = ($10,000 x 0.03%) x 3 = $9

With 5x leverage = $45

With 10x leverage = $90

Total daily earnings

Without leverage = $18 + $9 = $27

With 5x leverage = $135

With 10x leverage = $270

Please note this is a market-neutral strategy since you open positions on both sides of the trade. Furthermore, you may need to pay exchange and leverage fees, too.

Cash and Carry

This trading strategy allows you to profit from the difference in a crypto’s perp and spot prices. You buy crypto in the spot market and short the same amount in the perpetuals market.

Let’s say you’d like to invest $22,200. Assume BTC is trading at $20,000 in spot and $22,000 in the perpetuals market. You buy 1 BTC for $20,000 in spot and short 1 BTC with $2,200 margin and 10x leverage in perpetuals. Also, assuming that the funding rate is paid every 8 hours and stays 0.06% for 24 hours, you stand to earn (excluding exchange and leverage fees):

($2,200 x 0.06%) x 3 = $3.96

With 10x leverage = $39.60 per day

Other than earning the $39.60 funding fee daily, you’ll also make a profit when the BTC spot and perp prices converge. However, please note your earning potential will be limited by the amount of cash you can spend up front in the BTC spot and perpetuals market.

Learning crypto funding rates is crucial for trading future and perpetual contracts. Crypto funding rates primarily help balance the perpetual rate to the spot price of a specific crypto. If the crypto funding rate is positive, you can earn a funding fee by shorting that crypto in the perpetuals market, and vice versa.

Different exchanges have different mechanisms for calculation of funding rates and funding fees. You must pick yours based on your own unique requirements like usable working capital, transaction fees, initial margin, and preferred trading strategy.

• How are Crypto Funding Rates Calculated?

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  Different platforms have different methods of calculating funding rates. In general, they are computed using two important factors — premium component and interest rate.

• What Does Negative Funding Rate Mean in Crypto?

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  A negative funding rate means that the crypto’s perpetual contract is trading at a price lower than its spot rate. In this scenario, shorts pay a funding fee to the longs in the market.

• What is the Funding Rate in Perpetual Futures for Crypto?

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  Funding rate is a price-anchoring mechanism through which a crypto perpetual futures contract’s price is kept close to its spot rate.

• What is the Funding Rate in Binance?

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  Binance uses the following formula for calculating funding rate:

  Funding Rate (F) = Average Premium Index (P) + clamp (Interest Rate – Premium Index (P), 0.05%, -0.05%)

  The funding rate usually varies from one trading pair to the other.

  
  

• What are the Funding Rates for Perpetual Swaps?

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  Different exchanges may have different funding rates for perpetual swaps. Generally, they are calculated based on the premium and interest components of each trading pair.

• What is a Positive Funding Rate?

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  A positive funding rate means that the crypto perp is trading at a price higher than that crypto’s spot rate. In this scenario, longs will pay a funding fee to the shorts in the market.

• How are Funding Rates Calculated?

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  Funding rates are calculated differently by different exchange platforms. They typically are derived from two important components — interest rate and premium.