When trading Perpetual Contracts, traders need to consider the Funding Rate and the Funding Interval. Perpetuals have no expiry date and therefore no final settlement or delivery. Funding payments are therefore used to incentivize the price of the contract to trade at the price of the underlying asset.
Click on the "Funding" tab on the top part of the trade page.
You will then be able to see the 1-hour, 8-hour, or annualized funding rate for the specified market.
Funding is calculated like an interest rate, and is determined by a funding rate that is adjusted algorithmically based on the price of the underlying & market prices for the Perpetual.
The main driver of the rate is how far the Perpetual’s market price is from the index price. If the market price is below the index price, shorts pay longs to entice traders to long, moving the market price in line with the index. When the rate is negative, shorts pay longs.
Conversely, if the Perpetual is above the index price, longs pay shorts so that traders are incentivized to go short & move the Perpetual price toward the index. When the rate is positive, longs pay shorts.
The amount paid by longs or shorts is a reflection of both how much leverage each side is employing, and the delta between the index price and the price of the Perpetual Contract. Traders make or receive payments in proportion to the size of their market position.
Funding rates tend to correlate with market sentiment. When the market is bullish or bearish, funding rates will tend to be positive or negative, respectively.
Funding payments are exchanged continuously every second. The funding rate is updated every hour, but is represented as an 8-hour rate, indicating the amount of funding accounts may expect to pay/receive over an 8-hour period.
The funding rate is composed of an interest rate component and the premium component.
Since Perpetual markets attempt to emulate margin spot markets, the first component of funding is an interest rate component which aims to account for the interest rate differential between the base and quote currencies, and is set to a fixed rate for each Perpetual market.
The premium component factors in market activity for the Perpetual. It is calculated once per minute based on the current order book and off-chain index price.
Perpetual Funding Rate: https://help.dydx.exchange/en/articles/4797443-perpetual-funding-rate
You can read more about our authors here.