How does perpetual funding work in the cryptocurrency market?

3 answers

• M. FASRUL FAIS ILMANMar 04, 2021 · 5 years ago
  Perpetual funding in the cryptocurrency market refers to the mechanism by which traders can borrow funds to maintain their positions in perpetual contracts. These contracts are derivative products that allow traders to speculate on the price movements of cryptocurrencies without actually owning the underlying assets. Perpetual funding is used to ensure that the market price of the perpetual contract stays close to the spot price of the underlying cryptocurrency. Traders who hold long positions pay funding fees to traders who hold short positions, and vice versa. This helps to incentivize traders to keep the price of the perpetual contract in line with the spot price, as they can profit from the funding fees. It also helps to prevent large deviations between the perpetual contract price and the spot price, which could lead to arbitrage opportunities.
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• Chadwick HillSep 28, 2020 · 5 years ago
  Perpetual funding works through a funding rate that is calculated periodically, usually every 8 hours. The funding rate is determined by the difference between the perpetual contract price and the spot price of the underlying cryptocurrency. If the perpetual contract price is higher than the spot price, long position holders will pay a funding fee to short position holders. If the perpetual contract price is lower than the spot price, short position holders will pay a funding fee to long position holders. The funding rate is typically expressed as an annualized rate and is applied to the notional value of the position. It's important for traders to monitor the funding rate as it can have a significant impact on their profitability and trading strategies.
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• James McCoyNov 09, 2020 · 5 years ago
  Perpetual funding is an important aspect of trading in the cryptocurrency market. It helps to ensure that the price of perpetual contracts closely tracks the spot price of the underlying cryptocurrency, which is crucial for maintaining market efficiency and preventing arbitrage opportunities. Traders who understand how perpetual funding works can use this knowledge to their advantage by strategically entering and exiting positions based on the funding rate. It's also worth noting that different cryptocurrency exchanges may have slightly different mechanisms for calculating and applying perpetual funding. Traders should familiarize themselves with the specific rules and procedures of the exchange they are trading on to fully understand how perpetual funding works in that particular context.
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