Introduction to Funding Rate

    bybit2024-02-23 16:54:27

    On the Derivatives trading page, traders may check the funding rate, which will fluctuate in real-time until the upcoming funding timestamp. The funding rate is not fixed and is updated every minute, according to the Interest Rate and Premium Index, which affects the calculation of the funding rate until the end of the current funding interval.


    Let’s take an 8-hour funding time interval as an example. 

    • The funding rate is calculated between 12AM (midnight) UTC and 8AM UTC, and will be exchanged at 8AM UTC.

    • Funding rates calculated between 8AM UTC and 4PM UTC will be exchanged at 4PM UTC.


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    Funding Rate Calculation

    The funding rate consists of two parts: Interest Rate and Average Premium Index (P).

     

    Bybit calculates the Interest Rate (I) and the Average Premium Index (P) every minute by performing an N*-Hour Time-Weighted-Average-Price (TWAP) over the series of minute rates. The closer to the funding fee settlement time, the greater the coefficient of the premium index.

     

    Taking an 8-hour funding interval as an example, the Average Premium Index (P) is calculated using the formula: (Premium Index _1 * 1 + Premium Index _2 * 2 +... + Premium Index _480 * 480)/(1 + 2 +... + 480).

     

    Each hour corresponds to 60-minute intervals. If the funding interval is every 4 hours, corresponding to 240 intervals (4 * 60), then the coefficients would be 1, 2, ..., 240, forming an arithmetic progression starting from 1 with a common difference of 1.

     

    The Funding Rate is next calculated with the N*-Hour Interest Rate component and the N*-Hour premium/discount component. A +/−0.05% dampener is added.

    *N = Funding Time interval. Suppose funding occurs once every 8 hours, N = 8. And if funding occurs once per hour, N = 1.

     

    Funding Rate (F) = Average Premium Index (P) + clamp (Interest Rate (I) − Average  Premium Index (P), 0.05%, −0.05%)

     

    Hence, if (I − P) is within +/−0.05%, then F = P + (I − P) = I. In other words, the funding rate will equal the Interest Rate.

     

    This calculated funding rate is then applied to a trader’s position value to determine the funding fee to be paid or received at the funding timestamp.
     

     

     


    Interest Rate (I)

    Formula

    Interest Rate (I) = Price Interest Rate Index − Base Rate Index/Fund Rate Interval

    • Interest Quote Index = The interest rate for borrowing the quoted currency
    • Interest Base Index = The interest rate for borrowing the base currency
    • Funding Interval = 24/Funding Time interval

    Exception: For USDCUSDT contract, the interest rate (I) will be default at 0.000001% as both the base token and quoted token are stable coins.

    Let’s take BTCUSD as an example.

    Every contract traded on Bybit comprises a base currency, such as BTC, and a quoted currency, such as USD. The interest rate is a function of the difference in interest rates between these two currencies. In this case, this is the difference between the borrowing costs of BTC and USD.
     

    Tip: You can view the BTC lending rate under the Contract Details.

     

    Factors

    Funding time interval: 3 = 24/8 (assuming funding time intervals occur every 8 hours)

    Interest Quote Index = 0.06%

    Interest Base Index = 0.03%

    This is based on the following calculation:

    Interest Rate = (0.06% − 0.03%)/3 = 0.01%


    Premium Index (P)

    Perpetual contracts may trade at either a premium or discount from the mark price. In this situation, a premium index will be used to raise or lower the next funding rate to align with the level of the contract trade.

    Tip: You can view the history of the premium index in Premium Index under the Contract Details.

     

    Formula

    Premium Index (P) = [Max (0, Impact Bid Price − Index Price) − Max (0, Index Price − Impact Ask Price)]/Index Price

    * Impact Bid Price = The average fill price to execute the Impact Margin Notional on the Bid side

    * Impact Ask Price = The average fill price to execute the Impact Margin Notional on the Ask side

     

    Impact Margin Notional (IMN) is the notion available to trade with a certain amount of margin. It’s used to determine how deep the order book is and to measure the Impact Bid or Ask Price.

     

    The IMN is configured in USDT value and can be found here. To obtain the corresponding base coin quantity from the order book, the formula is as follows:

     

    Base Coin Quantity =  Impact margin national / [(bid1+ask1)/2]

     

     

     

     

    Funding Rate Limit

    During periods of significant market volatility, Bybit may temporarily adjust the upper and lower limits of the Funding Rate to encourage the Perpetual Contract's price to return to a reasonable range. To view the updated Funding Rate Limit, please visit here.

     

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