How does funding work on perpetual futures in the context of digital currencies?

3 answers

• Nov 23, 2021 · 3 years ago
  Funding on perpetual futures in the context of digital currencies is a mechanism used to ensure that the price of the perpetual contract closely tracks the spot price of the underlying digital currency. It is essentially an interest rate that is exchanged between long and short positions every 8 hours. If the funding rate is positive, long positions pay short positions, and if it is negative, short positions pay long positions. This mechanism helps to prevent the perpetual contract from deviating too far from the spot price and encourages traders to keep their positions in line with the market.
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• Nov 23, 2021 · 3 years ago
  When it comes to funding on perpetual futures in the context of digital currencies, it's all about maintaining balance. The funding rate is determined by the difference between the perpetual contract price and the spot price of the underlying digital currency. If the contract price is higher than the spot price, long positions will pay funding to short positions, and vice versa. This incentivizes traders to keep the contract price in line with the spot price. So, in a way, funding acts as a mechanism to keep the market in check and prevent excessive price deviations.
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• Nov 23, 2021 · 3 years ago
  Funding on perpetual futures in the context of digital currencies is an important aspect of maintaining fair and efficient markets. It ensures that the price of the perpetual contract stays in line with the spot price of the underlying digital currency. This is achieved through the funding rate, which is exchanged between long and short positions every 8 hours. The funding rate is determined by the difference between the contract price and the spot price. If the contract price is higher, long positions pay funding to short positions, and if it is lower, short positions pay funding to long positions. This mechanism helps to incentivize traders to keep the contract price close to the spot price, reducing the risk of market manipulation and ensuring a more accurate representation of the underlying asset's value.
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