The funding rate determines periodic payments between long and short traders in perpetual Futures. It ensures the Futures price closely tracks the Spot index price.
Formula: Funding Rate = Interest Rate + Clamp(Premium Index, -0.05%, 0.05%)
Interest Rate: Reflects the cost of holding positions.
Premium Index: The difference between the perpetual contract price and the Spot index price.
Clamp: Ensures the funding rate stays within a fixed range (e.g., ±0.05%).
Suppose the BTCUSDT perpetual contract on MEXC is trading at $60,600, while the Spot index price is $60,000. This means the Futures price is higher than the Spot, showing a positive premium.
If the Premium Index = 0.1%, and the Interest Rate = 0.01%, then the Funding Rate = 0.01% + 0.1% = 0.11%.
In this case, long traders pay short traders a 0.11% funding fee at the next funding time, since the market is biased toward longs.
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