> For the complete documentation index, see [llms.txt](https://docs.strikefinance.org/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.strikefinance.org/perpetuals/funding-rates.md). # Funding Rates Perpetual futures contracts have no expiration date, so they need a mechanism to keep the contract price aligned with the underlying spot price. Funding rates serve this purpose — they are periodic payments between long and short traders that incentivize the perpetual price to converge with the spot index price. ### How Funding Works At regular intervals, a funding payment is exchanged directly between traders holding open positions. No payment goes to Strike — it is purely a transfer between longs and shorts. When the funding rate is positive: Longs pay shorts. This happens when the perpetual price is trading above the spot index price (premium). The payment incentivizes traders to sell (or close longs), pushing the perpetual price down toward spot. When the funding rate is negative: Shorts pay longs. This happens when the perpetual price is trading below the spot index price (discount). The payment incentivizes traders to buy (or close shorts), pushing the perpetual price up toward spot. ### Payment Calculation Each funding payment is calculated per position: ``` Funding Payment = Position Size x Mark Price x Funding Rate ``` Position Size — The absolute size of your position in the base asset (e.g., 1.5 BTC). Mark Price — The current mark price of the contract at the time of the funding round. Funding Rate — The hourly rate for that funding period, expressed as a percentage. A positive payment means you receive funds. A negative payment means funds are deducted from your account balance. ### Example You hold a long position of 2 BTC. The mark price is $50,000 and the hourly funding rate is +0.00125% (positive). ``` Payment = 2 x $50,000 x 0.0000125 = -$1.25 ``` Since the rate is positive and you are long, you pay $1.25. A short trader with the same position size would receive $1.25. Over 8 hours, this totals $10 — equivalent to an 8-hour rate of +0.01%. If the funding rate were -0.00125% (negative): ``` Payment = 2 x $50,000 x (-0.0000125) = +$1.25 ``` Now you receive $1.25 as a long, and shorts pay $1.25. ### Funding Rate Determination The funding rate is computed using the Binance-style formula on an 8-hour basis, then divided by 8 to produce a per-hour payment. This preserves the standard 8-hour economics while distributing payments more smoothly across 8 hourly intervals. The calculation has three components: the Premium Index, the Interest Rate, and a damping mechanism. #### 1. Premium Index The Premium Index measures how far the perpetual contract price deviates from the spot index price. It is sampled every 5 seconds using orderbook depth: ``` Premium Index = (max(0, Impact Bid - Index Price) - max(0, Index Price - Impact Ask)) / Index Price ``` Impact Bid/Ask Prices are not simply the best bid/ask. They are calculated by simulating a trade through the orderbook with a notional size equal to the Impact Margin Notional (IMN): ``` IMN = 200 x Max Leverage ``` For example, with 125x max leverage, IMN = 25,000 USDT. The impact bid price is the average fill price you would get selling IMN worth of contracts through the orderbook, and the impact ask price is the average fill price buying IMN worth. This ensures the premium index reflects realistic market depth rather than just the top-of-book spread. If an impact price deviates more than 20% from the index price, it is replaced with the index price as an outlier safeguard. #### 2. Average Premium Index Over each 1-hour funding period, all premium index samples are averaged using a simple (equal-weight) average. With sampling every 5 seconds, this produces up to 720 samples per hour. #### 3. Interest Rate The interest rate is a fixed component expressed on an 8-hour basis. For crypto pairs, the default 8-hour interest rate is 0.01% (equivalent to 0.03% per day). This value is configurable per market. #### 4. Final Funding Rate The final funding rate is computed on an 8-hour basis, then divided by 8 to produce the hourly rate: ``` Step 1: Damper = Clamp(I - P, -0.05%, +0.05%) Step 2: Rate_8h = P + Damper Step 3: Rate_8h = Clamp(Rate_8h, Floor_8h, Cap_8h) Step 4: Hourly Rate = Rate_8h / 8 ``` The damper limits how much the interest rate adjustment can shift the funding rate in a single period. The final clamp enforces absolute bounds per market on the 8-hour rate before the hourly division is applied. ### Worked Example ``` Average Premium Index (P) = 0.0429% Interest Rate (I) = 0.01% (8-hour basis) 1. I - P = 0.01% - 0.0429% = -0.0329% 2. Damper = Clamp(-0.0329%, -0.05%, +0.05%) = -0.0329% 3. Rate_8h = 0.0429% + (-0.0329%) = 0.01% 4. Clamp_8h = Clamp(0.01%, -4%, +4%) = 0.01% 5. Hourly Rate = 0.01% / 8 = 0.00125% Funding Rate (hourly) = 0.00125% ``` ### Key Constants | Parameter | Value | Description | | ------------------------------ | ----------------- | --------------------------------------------------- | | Interest Rate (8h basis) | 0.01% | Base interest rate per 8-hour period (crypto pairs) | | Damper Range | -0.05% to +0.05% | Limits interest rate adjustment per period | | Funding Rate Cap (8h) | +4% | Maximum 8-hour funding rate before hourly division | | Funding Rate Floor (8h) | -4% | Minimum 8-hour funding rate before hourly division | | Effective Hourly Cap | +0.5% | Maximum hourly funding rate (Cap / 8) | | Effective Hourly Floor | -0.5% | Minimum hourly funding rate (Floor / 8) | | Funding Interval | 1 hour | How often funding payments are processed | | Premium Index Sampling | Every 5 seconds | How often the premium index is computed | | Impact Price Outlier Threshold | +/-20% from index | Outlier replacement bound | Funding rates are updated in real time and visible on each market's information panel, along with the countdown to the next funding payment. ### Funding Intervals Funding payments are processed every hour, on the hour (UTC). The next funding time for each market is publicly displayed, so you always know when the next payment will occur. Funding is only charged if you hold an open position at the exact moment the funding round is processed. If you open and close a position between funding rounds, you do not pay or receive any funding. ### Impact on Trading Holding costs — Funding payments are an ongoing cost (or benefit) of holding a perpetual position. With hourly payments, costs accrue more gradually than with 8-hour intervals, but the total over any 8-hour window remains the same. In trending markets where one side consistently pays funding, these costs can add up over time. Carry trades — Some traders specifically target funding payments by taking the receiving side when rates are elevated, earning funding income while hedging their directional exposure. Short-term traders — If you trade on short timeframes and close positions before funding rounds, funding has minimal impact on your PnL. With hourly funding, the window to avoid funding payments is shorter. ### Funding and Account Balance Funding payments are applied directly to your account balance: Payments received increase your available balance. Payments deducted decrease your available balance. Funding payments affect your margin calculations — a large negative funding payment can bring your account closer to liquidation if you are already near the margin threshold. Liquidation checks run immediately after funding payments are processed, so if a funding payment pushes your margin ratio past the liquidation threshold, your position will be liquidated in the same cycle. All funding payment history is recorded and accessible through your transaction history. ### Cross vs Isolated Margin Funding interacts differently depending on your margin mode: Cross margin — Funding payments are applied to your wallet balance, which feeds into your available balance and margin ratio. A negative funding payment reduces your available balance across all cross-margin positions, potentially bringing your entire cross-margin portfolio closer to liquidation. Isolated margin — If a negative funding payment would cause your available balance to go negative, margin is automatically released from the isolated position's balance to cover the shortfall. This prevents the funding payment on one isolated position from affecting your other positions, but it does reduce the effective margin on that position and may bring it closer to its own liquidation price. ### Accumulated Funding Fees Each position tracks its total accumulated funding fees over its lifetime. Positive accumulated fees mean the position has received more funding than it has paid, and negative means the opposite. This value is included in your position details and is useful for understanding the true cost of holding a position over time.