Mechanism of funding rate in perpetual future contracts

btcsmlcmnr

full member

Activity: 546

Merit: 159

Quote from: winrate.io on November 30, 2020, 12:05:34 PM

Yeah, the funding mechanism is great nowadays. However, it's very expensive in the long run if you hold a position with leverage for more than 24 hours. It will slowly eat your position alive.

Therefore, I only scalp and day trade with leverage, otherwise I just go with 1x leverage. Does that make sense?

Funding rates are awesome to help you get earning even you close your contracts with a draw.

The leverage at x1 is safe and you can keep your contracts longer with very little risks of liquidation. The leverages from x10 and above are risky and the liquidation odds are much higher. It is for very professional leverage traders who are knowing exactly what they are trading or for gamblers who don't know what they are doing with leverage trades.

Professional leverage traders don't let their positions are opened for too long time. Close positions and exit with draws are already success when they are successfully protect their capital.

BrownSuS

jr. member

Activity: 30

Merit: 3

1x or 125x Leverage, it doesn't make any sense as if the funding rate goes up means the long position already earning handsome profit. Just you have to close the position on right time to avoid unnecessary losses

Quote from: winrate.io on November 30, 2020, 12:05:34 PM

Yeah, the funding mechanism is great nowadays. However, it's very expensive in the long run if you hold a position with leverage for more than 24 hours. It will slowly eat your position alive.

Therefore, I only scalp and day trade with leverage, otherwise I just go with 1x leverage. Does that make sense?

winrate.io

copper member

Activity: 107

Merit: 3

Yeah, the funding mechanism is great nowadays. However, it's very expensive in the long run if you hold a position with leverage for more than 24 hours. It will slowly eat your position alive.

Therefore, I only scalp and day trade with leverage, otherwise I just go with 1x leverage. Does that make sense?

BrownSuS

jr. member

Activity: 30

Merit: 3

Perpetual future contracts brings revolution in the futures market with endless limit of future contract. For making the contract with endless expiry date, the concept of Funding Rate came into existence. Under this mechanism the buyer or seller will either pay or receive funding on periodic bases.

It is consists of two components-
a) The Interest rate
b) Premium

Basically on Binance futures, the Interest rate is 0.03% per day (recalculated three times in 8Hrs circles of 0.01% each)and the premium varies with the mark price to prevent the increasing difference between the prices of perpetual contract price and spot market.

Here shows the funding rate and countdown period in the image when it is on marked price.

Funding rate includes Premium the price also

source- BINANCE

Example of profit or loss due to Funding rate to the traders-

If the traders gets into the long position at $10 and its on $11 after 8hrs, so the long position holder trader has to pay funding rate to the short position holder, but after that if the price goes down to less than $10 , then the short position holder has to pay funding rate to prevent the lasting divergence of the price in both the markets.

So, with this mechanism crypto traders get rid of traditional future contracts with specific expiry date

Topic: Mechanism of funding rate in perpetual future contracts (Read 135 times)