What is Perpetual Contract Funding (How is Perpetual Contract Fee Calculated)?

What is perpetual contract funding? Editor’s note: This article is from according to Odaily Star Daily and is authorized for reprint.

Perpetual contract refers to the funding rate (usually a fixed fee) used in trading. In the spot market, this method is mainly composed of two modes: opening long positions and closing short positions. If the funds are placed in a delivery forward contract, a margin of at least $1 is required as a fee for opening long positions or closing short positions. Bitcoin and Ethereum perpetual contracts usually incur a certain funding cost, such as an additional funding fee whenever the price falls below a certain level. This amount is equivalent to the ratio of the user’s position to the total asset value. Therefore, the less currency a user has, the more significant this funding is. So why spend so much money to buy futures contracts? Due to the current decline in Bitcoin prices and the continuous decrease in Ethereum prices, the funding fee has increased. However, in the spot market, although many people use the term “contract” to trade leveraged contracts, the reason behind it is very simple-the contract itself is an investment product. It is not for making money, but for hoping to make money.For contracts, their main function is to allow investors to participate because they can freely set their own risk management strategies anywhere. For example, in Bitcoin’s perpetual contract, a certain leverage ratio can be set for opening long or selling, and as long as you choose the long/short mode, you can receive the corresponding margin income. Of course, funds can also be invested in other cryptocurrency perpetual contracts, such as ETH.According to data from CoinMarketCap, the 24-hour trading volume of Bitcoin perpetual contracts has reached $477 million, an increase of more than 20% compared to previous market data. In the past week, the number of daily active addresses for Bitcoin has also increased, from nearly 20,000 on March 19 to a historical high of 8,200 coins in early July, an increase of 23%.It is worth noting that the funding rate on Bitcoin perpetual contracts is also calculated based on a fixed quantity. Currently, the funding rate in BTC perpetual contracts is maintained at about 6%. In addition, similar situations have also occurred on the BitMEX platform, where the funding rate in BTC perpetual contracts remains at 4%-8% unchanged. (Note: The funding fee refers to the amount paid by the two parties to the contract, including all funds, such as USDT, in the total profit.)

How to Calculate Perpetual Contract Fees

Editor’s note: This article is from the FHLun community (ID: FHBT18), written by Peipei, authorized reprint of Odaily Star Daily.Hello everyone, I am Peipei. Today, let’s talk about the fees for contracts and the calculation methods of coin-based perpetual contracts, as well as specific profit plans. 1. In contracts during the delivery period, the fee is calculated based on the spot price, while the interest generated during the perpetual period depends on the market price.Generally speaking, traders need to pay a certain amount of margin or leverage position to purchase the corresponding number of contract tokens. If you want to buy a new contract, a certain amount of margin will be charged as the basic fee. For example, if you want to sell a certain currency with this token, the contract will initially charge you a fee of 1 yuan or more. For most users, this operation is very time-consuming and risky, especially for those who are pegged to stable digital currencies such as USDT, because of its high volatility, so they need to bear corresponding loss risks. However, this does not mean that contract fees can be considered very high. But from the current situation, the fees have indeed increased, especially in Bitcoin futures. More and more exchanges have launched perpetual contracts, and trading has not yet been opened. Of course, this is also related to the rise and fall of spot prices. 2. When the market is rising, the fees are relatively high. If you short in contracts, the cost is relatively high. For example, some platforms have opened a new type of trading variety in the current market, such as BitMEX’s BTC perpetual contract, which currently has a daily trading volume of about 100,000 US dollars. But if we add the arbitrage space caused by recent price changes, the fees will increase a lot.The first situation is the increase in trading volume. If there are no other factors, the trading volume may be only temporary and may decrease over time. In addition, some friends believe that there is a significant premium in contracts, so some investors are willing to invest funds in them.The second situation is that if you have a lot of coins in hand, you can also lend these coins and exchange them for ETH. In this case, you don’t have to worry about your assets being stolen or whether your positions can be held continuously. The third point is also the most important one. If there is a change in the direction of buying and selling contracts or other unexpected situations, the fees will also be adjusted accordingly.