Funding Rates

Information on the funding rate mechanism BSX uses

Since perpetual futures have no expiry date, the funding rate is the mechanism that keeps the perp price tethered to the spot price. Funding rates incentivize traders to go long or short on the contract based on whether the funding rate is positive or negative. The funding rate is the % amount a buyer/seller pays the other side for holding the perpetual contract. These payments are done periodically based on the schedule the exchange sets.

• Positive Funding Rate: A positive funding rate occurs when the price of the perps contract is higher than the index price. In this situation, the longs will pay the shorts - perps market price > index price

• Negative Funding Rate: A negative funding rate occurs when the price of the perps contract is lower than the index price. In this situation, the shorts will pay the longs - perps market price < index price

BSX Funding Rate Specifications

• Spot Index Price (Pulled from Stork)

• Impact Bid Price (Calculated from BSX orderbook)

• Impact Ask Price (Calculated from BSX orderbook)

• Impact Notional Amount (Calculated based on market)

• Funding Payment Intervals: 60 minutes

• Max / Min Funding Rate: 4%

• The amount you pay/receive in funding is proportional to the notional size of the position you hold.

  • Funding Payment = Position Notional Value * Hourly Funding Rate

The following is how the Funding Payment is calculated:

$\text{Impact Notional Amount} = \frac{500}{\text{IMR of Market}}$

$\text{Impact Bid Price} = Avg(\text{Execution Price of sell with size of Impact Notional Amount})$

$\text{Impact Ask Price} = Avg(\text{Execution Price of buy with size of Impact Notional Amount})$

$\text{Premium} = \frac{\text{(max(0, Impact Bid Price - Index Price) - max(0, Index Price - Impact Ask Price)}}{\text{Index Price}}$

$\text{Funding Rate} = \frac{Premium}{24}$

$\text{Funding Payment} = \text{-1 * Position Notional Value * Funding Rate}$

Note: If the position is long then the notional value is a positive number and vice-versa if the position is short

The premium is calculated once every minute over 60 minutes and then averaged. The average premium is used when determining the funding rate.

Funding is continuous and settles when a user closes a trade where they have positive or negative funding.