Futures trading: should I aim to avoid funding fees wherever possible?

exstasie

legendary

Activity: 1806

Merit: 1521

Quote from: jdn_ldn on June 06, 2020, 07:55:45 PM

Quote from: exstasie on June 06, 2020, 03:40:59 PM

With really high funding rates it may be worth looking into, although when funding rates are really high that usually implies a strong trend and high volatility which is probably more important to focus on.

Do you mean if theres a strong trend in your favour then it might be worth paying the funding premium to stay in?

Yep, because you need to consider whether (given liquidity) and at what price you can rebuild your position. That is what effectively keeps most longs from closing despite high funding rates. They assume they'll just have to buy back higher.

See Bitmex funding rates vs. price in January-February this year: https://coinalyze.net/bitcoin/usd/bitmex/funding-rate-chart/btcusd_perp_fr/

There are better examples but Coinalyze only has data back to January. The point is that strong trends reinforce high funding rates because the potential price movement outweighs funding costs by so much.

jdn_ldn

newbie

Activity: 26

Merit: 7

Quote from: exstasie on June 06, 2020, 03:40:59 PM

All traders have the same incentive as you (close position to avoid paying funding fees)

Ah ok, this information may have helped solve an ongoing mystery with my bot! Basically I've been getting consistent API latency issues with a 00:00UTC trade but not with any others. Automated orders were taking up to 10s for this one, compared to <1s for all others. I couldn't work it out. I'm now guessing that theres a load of traffic as everyone rushes to close positions before funding, or deploy strategies based on the predictable price movement you mentioned. Thanks.

Quote from: exstasie on June 06, 2020, 03:40:59 PM

With really high funding rates it may be worth looking into, although when funding rates are really high that usually implies a strong trend and high volatility which is probably more important to focus on.

Do you mean if theres a strong trend in your favour then it might be worth paying the funding premium to stay in?

exstasie

legendary

Activity: 1806

Merit: 1521

Quote from: jdn_ldn on June 06, 2020, 02:51:08 PM

Otherwise, of course I would aim to implement something that closes the position a few seconds before 00:00UTC to narrowly avoid the funding fee.

I am curious how well that would work. All traders have the same incentive as you (close position to avoid paying funding fees), so what usually happens is the price premium (or discount) "prices in" this phenomenon.

For example, longs are about to pay shorts 0.01% at funding time. Since longs want to avoid paying, they close their longs, forcing price down. This forces the funding rate down as mark price drops vs. the index and it makes it unattractive for longs to keep closing.

With really high funding rates it may be worth looking into, although when funding rates are really high that usually implies a strong trend and high volatility which is probably more important to focus on.

jdn_ldn

newbie

Activity: 26

Merit: 7

With one of my automated strategies, a position gets closed at the exact same time as one of the three daily fundings occur (+00:00UTC Binance Futures).

The Binance docs on funding say "In general, traders prefer platforms that provide the lowest funding rate as it can have a significant impact on profits and losses."

So does this imply that traders should look to avoid paying funding wherever possible?

I know it might seem like a silly question, but my transaction history shows that its pretty 50/50 as to weather funding is charged positive or negative. I'm wondering if long-term it might just work out fairly balanced anyway?

Otherwise, of course I would aim to implement something that closes the position a few seconds before 00:00UTC to narrowly avoid the funding fee.

I should say I'm fairly new to futures/derivatives and am getting to grips with it using a tiny balance and 1x leverage (basically I'm aware of the risks before anyone points them out).

Topic: Futures trading: should I aim to avoid funding fees wherever possible? (Read 466 times)