1.Function of Funding rate
The function of funding rate is to reduce the price difference (price regression) between perpetual contract market and spot market.
Unlike traditional contracts, perpetual contract traders can hold positions all the time without delivery dates or tracking different delivery months. For example, a trader can hold an short position permanently until it is closed. Therefore, perpetual contract trading is very similar to spot market trading. All in all, perpetual contracts will not be liquidated in the traditional way. Because of this, Coinstore creates a mechanism to ensure that the contract price is consistent with the index price, which is called funding rate.
2.What is the funding rate?
Funding rate is a fixed fee paid to long or short traders based on the difference between market price and spot price of perpetual contract. When the market trend is bullish, the funding rate is positive, and the long positions pay the funding fee to short positions. On the contrary, when the market is bearish, the funding rate is negative, and short positions pay the funding fee to long positions. Coinstore will not charge any fees from the fund rate, and the fund will be transferred directly between users.
On the Coinstore futures trading platform, the funding fee is calculated every 8 hours at UTC + 0 00:00 (GMT + 8 08:00) and UTC + 0:00 (GMT + 8 08:00) 08:00 (GMT+8 16: 00) and UTC + 0 16:00 (GMT+8 24:00) . Only if you hold a position at these time points will you be required to charge or pay a funding fee. If you hold a position in any direction at the time of calculation, you will be charged or paid the corresponding funding fee. When a trader does not have any position at that time, he will not be charged or paid any funding fee.
3.How to calculate the funding fee?
Calculation formula of funding fee:
funding fee = nominal value of position x funding rate
*Nominal value of position = mark price x position size x contract value
4.How to calculate the funding rate?
The calculation of funding rate consists of two parts: interest rate and premium. The premium represents why the price of the perpetual contract will converge with the change trend of the underlying price.
Coinstore uses a fixed interest rate in the fund rate. By default, the interest rate is set at 0.03% per day (0.01% per fund rate settlement cycle).
Calculation formula of fund rate:
Step 1: calculate the impact buy / sell price:
The cumulative order amount near the orderbook reaches the average price of all orders with margin impact.
*The margin impact amount refers to the maximum amount of margin that can be traded in a certain amount. For example, for BTCUSDT contract, the margin impact refers to the amount of margin that can be traded for 1000USDT. Margin impact = 1000usdt * maximum leverage
Cumulative order amount
contact value*P1*Q1+contact value*P2*Q2
contact value*P1*Q1+contact value*P2*Q2+contact value*P3*Q3
If the cumulative order amount of quotation in depth X is greater than the amount of margin impact, and the cumulative order amount of quotation in depth X-1 is less than the amount of margin impact, the cumulative order amount of quotation in depth x is used in the calculation, so that the cumulative order amount of quotation is > = the amount of margin impact
*Suppose the depth purchase price is calculated to x depth, and the price and quantity are PX and QX.
Impact buy price=
Similarly, we can calculate the impact sell price.
Step 2: calculate the forecast premium index
Coinstore calculates the premium index every minute, and calculates all indexes as arithmetic average during the funding period.
Note: 480 time points are sampled in each period. When the server is down or maintained, the sampling may be less than 480 time points.
Forecast premium index (t) = max (impact buy price, min (mark price, impact sell price)) / index price-1
Step 3: calculate the forecast average premium index
The forecast premium index obtained in the second step is brought into the weighted average formula to calculate the forecast average premium index of a certain minute.
Forecast average premium index (T)=
Step 4: calculate the forecast funding rate
The one minute forecast funding rate is calculated based on the interest rate and the forecast average premium.
Forecast fund rate (T) = forecast average premium index (T) + clamp [interest rate - forecast average premium index (T), - 0.05%, 0.05]
*Clamp is an interval limited function. When the target value exceeds the upper and lower limits, only the boundary value will be taken.
If (interest rate forecast average premium index (T)) is within + / - 0.05%, the funding rate will be equal to the interest rate.
For example, when the average premium index is between - 0.04% and 0.06%, the temporary fund rate will be equal to 0.01% (interest rate)
At the same time, the forecast fund rate is limited by the upper and lower limits of the range
Forecast fund rate (T) = clamp [forecast fund rate (T), upper limit, lower limit]
*Upper limit = 0.75 * maintenance margin ratio, lower limit = - 0.75 * maintenance margin ratio
Step 5: funding rate
The funding rate of the next period (8:00-15:59) will be determined at the last minute of each period (7:59)（ This fixed value is used to calculate the swap fee at 16:00 and the mark price during the period.)
The funding rate is calculated according to the maintenance margin ratio and initial margin ratio of each contract. The maintenance margin ratio and initial margin ratio of each contract are not exactly the same. Please pay attention to the contract configuration parameters for details.