Learn what funding rate is and why it matters.
A key feature of traditional futures contracts is the expiration date. When a contract expires, a process known as settlement begins.
Unlike conventional futures, traders can hold positions without an expiry date and do not need to keep track of various delivery months. For instance, a trader can keep a short position to perpetuity unless he gets liquidated. As a result, trading perpetual contracts are very similar to trading pairs on the spot market.
On Binance Futures, the interest rate is fixed at 0.03% daily , with the exception of contracts such as BNBUSDT and BNBBUSD, where interest rates are 0%. Meanwhile, the premium varies according to the price difference between the perpetual contract and mark price. When the funding rate is positive, the price of the perpetual contract is usually higher than the mark price. Thus, thus, traders who are long pay for short positions. Conversely, a negative funding rate means that short positions pay for longs.
As shown in Chart 1, funding rates doubled as BTC prices rallied since the start of the year. The elevated funding rates represented a sign of confidence in the market about further upside potential. Still, many traders became aware of the rising funding fees, helping futures prices line up with spot.Presently, seven major exchanges offer perpetual contracts. In general, traders prefer platforms that provide the lowest funding rate as it can have a significant impact on profits and losses.
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