Funding Fee

The funding fee mechanism anchors the trading price of perpetual contracts to the spot price of the underlying asset.

Funding Fee = Positional Value * Funding Rate

Assuming funding payments occur every 8 hours:

• The funding fee is directly exchanged between the buyers and sellers every 8 hours. When the funding rate is positive, long position holders pay short position holders. When the funding rate is negative, short position holders pay the long position holders.
• If a trader holds a position during the funding fee settlement time, they will either pay or receive funding fees. You can check the funding rate and the next funding fee settlement time on the trading interface:
  

  App:
  
  Web:
  

Due to the complexity of funding fee settlement, the actual settlement time may have a deviation of 1 minute. Please refer to the actual settlement time. Users only need to pay or receive funding fees if they hold the position during the settlement time. If the position is closed before the fee is charged, no funding fees need to be paid.

For example, if the trading interface shows that the funding fees will be settled at 08:00:00 UTC, if you close the position at 08:00:03 UTC, the funding fee may not have been settled yet, so you do not need to pay or receive the funding fees. Or if you open a position at 08:00:59 UTC, due to the deviation in settlement time, you may still need to pay or receive funding fees.

How to Calculate Funding Fee

For example, you hold a long position of 5 BTC, and the Mark Price at the funding timestamp is 20,000 USDT, with a funding rate of 0.01%. In this case, you will be charged a funding fee of 10 USDT. Funding Fee Calculation:

Funding Fee = Position Size x Mark Price x Funding Rate
                     = 5 x 20,000 x 0.01%
                     = 10 USDT

Conversely, if you hold a short position of the same size, you would receive 10 USDT in funding fees.

The funding rate consists of two parts: interest rate differential and premium index. Pionex calculates the premium index every 5 seconds and then calculates its mean (P) every N* hours. N* = Funding Interval. If funding fee settlement occurs every 8 hours, then N = 8. If funding fees occur every 1 hour, then N = 1.

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

Where: clamp(value, max, min) means to truncate the value to the lower limit min and the upper limit max, i.e.,

• If value < min, return min.
• If value > max, return max.
• Otherwise, return value.

So, if (I-P) is between +/-0.05%, then F = P + (I-P) = I. In other words, the funding rate will be equal to the interest rate differential.

The calculated funding rate will be applied to the trader’s Positional Value, and the corresponding funding fee to be paid or received will be calculated at the respective funding fee settlement time.

Interest Rate Differential (I) = (Quoted Currency Daily Interest Rate – Base Currency Daily Interest Rate) / Funding Rate Frequency

• Funding Rate Frequency = 24 / Funding Interval
  
  

Please get in touch with Pionex Support if you have any other questions.