USDT-margined Swaps has no expiry or delivery, and anchors the contract price to the spot price by using the "Funding Mechanism".
USDT-margined Swaps are settled every 8 hours at the end of each period. There are three periods in total, which are 00: 00-8: 00, 8: 00-16: 00, 16: 00-00:00 (+1). The settlement time is 8:00 for the first period, 16:00 for the second period; 00:00 for the third period. The above are UTC+8 time.
Only users who hold positions at the settlement have to pay or receive funding; Users whose positions have been closed before the settlement are not required to pay or receive funding.
At the settlement, whether a user should receive or pay funding depends on the funding rate of the current period and the positions of the user. If the funding rate is positive, users with long positions should pay funding to users with short positions; if the funding rate is negative, users with short positions should pay funding to users with long positions.
Funding is a payment between users. Toobit does not charge any funding from users.
The funding that users should pay or receive is calculated as below:
Funding = Net Position * Settlement Price * Funding Rate
Among which, Net Position =Quantity of long positions – Quantity of short positions
When the funding rate is greater than 0, users with a net position greater than 0 have to pay funding, and users with a net position less than 0 will receive funding; when the funding rate is less than 0, users with a net position greater than 0 will receive funding, and users with a net position less than 0 have to pay funding.
Note: For a swaps that support both cross and isolated margin modes, the funding for the cross margin account and the isolated margin account will be calculated separately.
Funding Rate Calculation
Funding rate ensures the transaction price of perpetual swaps closing to the price of the underlying asset. The funding rate of each period is calculated from the data of the previous period and has been determined at the beginning of the current period. It will not be changed during the period and will be applied in funding calculation at the end of the current period. Meanwhile, in this period, the estimated funding rate for the next period is calculated every minute, and the last calculated estimated funding rate will be used as the rate for the next period.
For example, the funding rate for 8: 00-16: 00 is calculated from the data of the previous period 00: 00-8: 00, and the rate has been determined at 8:00 and will be used for settlement at 16:00. During 8: 00-16: 00, an estimated funding rate will be calculated every minute for the next period 16: 00-00:00 (+1), and the last calculated estimated funding rate will be used as the funding rate of the next period.
The funding rate is composed of a comprehensive interest rate and a premium.
- Comprehensive interest rate：
Each contract traded on Toobit is comprised of two currencies: the underlying currency and the denominated currency. For example: for BTC- USDT swaps contracts, the underlying currency is BTC, and the denominated currency is USDT.
Underlying currency interest rate: The daily lending rate of the underlying currency in the market. For example, because the underlying currency of the BTC-USDT swaps is BTC, the underlying currency interest rate is the daily lending rate of BTC.
Denominated currency interest rate: The daily lending rate of the denominated currency in the market. For example, because the denominated currency of the BTC perpetual contract is USDT, the denominated currency interest rate is the daily lending rate of USDT.
Comprehensive interest rate = (denominated currency interest rate – underlying currency interest rate) / Funding settlement frequency
Currently, the denominated currency interest rate is 0.06% and the underlying currency interest rate is 0.03% for all swaps, and the settlement frequency is 8 hours (3 times per day). Therefore, the current comprehensive interest rate of all perpetual swap is 0.01%.
Perpetual Swap may have a premium or discount when compared to its fair price. Toobit uses the premium index to measure the premium level of the contract and add it to the calculation of the funding rate. The higher the level of premium, the greater the funding rate, and the more motivation the shorts have to open short positions; the lower the level of the premium, the smaller the funding rate, and the more motivation the longs have to open long positions. By raising or lowering the funding rate, the contract price will return to a relatively reasonable level.
a. Funding rate basis rate
Funding rate basis rate reflects the basis difference generated by the funding in current period.
Funding rate basis rate = Current-period funding rate * (Time interval from current time to current-period settlement time / Settlement cycle)
If the current-period the funding rate of BTC-USDT swaps is 0.01%, the current time is 12:00, and the current-period settlement time is 16:00, meaning there are 4 hours to the settlement, and the settlement cycle is 8 hours (settled every 8 hours), then the current funding rate basis rate = 0.01% * ( 4 / 8 ) = 0.005%.
b. Fair price
The fair price is a relatively reasonable reference price for the perpetual swap based on the current spot index price and the current funding rate basis rate.
Fair price = Index price * (1 + funding rate basis rate)
For example, if the current BTC index price is 10,000 USDT and the BTC-USDT swaps funding rate basis rate is 0.005%, then the current BTC-USDT perpetual swap fair price = 10000 * ( 1 + 0.005% ) = 10000.5 USDT.
c. Depth weighted bid / ask prices
The depth weighted bid price: the average bid price when the cumulative amount of open orders from bid_one reaches N USDT based on the open orders on current order book.
The depth weighted ask price: the average ask price when the cumulative amount of open orders from ask_one reaches N USDT on based on the open orders on current order book.
The value range of N: 8000 USDT. That is, Sum (order price * order quantity) = 8000 USDT
d. Premium index
The premium index reflects the current premium situation caused by the combination of funding rate basis rate and the deviation of the depth buy/sell price from the fair price.
Premium index = [Max (0, depth weighted bid price – fair price)-Max (0, fair price – depth weighted ask price)] / index price + funding rate basis rate；
Thus it can be seen from the formula that:
a). When the depth weighted ask price ≥ fair price ≥ depth weighted bid price, the premium index = funding rate basis rate;
b). When the depth weighted ask price > depth weighted bid price > fair price, the premium index = (depth weighted bid price – fair price) / index price + funding rate basis rate;
c). When fair price > depth weighted ask price > depth-weighted bid price, the premium index = (depth weighted ask price –fair price) / index price + funding rate basis rate;
The premium index is calculated every minute.
e. Average premium index
The current average premium index is the arithmetic average of all current-period premium indices in the last 8 hours.
For example, in the period of 8:00-16:00, the average premium index of 8:30 is the arithmetic average of all premium indices during 8: 00-8: 30; the average premium index of 15:00 is the arithmetic average of all premium indices during 8: 00-15: 00.
Average premium index is calculated every minute.
Estimated Funding Rate of Next Period, which is determined by the comprehensive interest rate and average premium index, is as follows:
Estimated Funding Rate Of Next Period = clamp (average premium index + clamp (comprehensive interest rate – average premium index, premium deviating from upper limit, premium deviating from lower limit), upper limit of funding rate, lower limit of funding rate)
Among them, clamp is an interval-limited function. When the target value exceeds the upper and lower limits, only the boundary value is taken. For example, clamp (a, max, min), the result is max when a > max; the result is a when a < min.
The comprehensive interest rate – average premium index is limited by the premium deviation from the upper limit and the premium deviation from the lower limit, which is in between; the final forecasting the funding rate of next period is limited by the upper limit of the capital rate and the lower limit of the fund rate, which is in between.
Other Cases of Funding
Funding are charged at the settlements. For users with low margin rates, they will be charged less (or not). Only the maximum payable funding of the user will be charged, and the excess will not be charged. The maximum payable funding is calculated as following:
Maximum payable funding = max (0, static equity - adjustment factor * abs (net position) * contract face value * settlement price / leverage)