What Is Funding Rate?
Periodic payments between long and short traders in perpetual futures.
Definition
Funding rates are payments passed between long and short holders of a perpetual future to keep its price near spot. Positive funding, longs pay shorts. Negative, shorts pay longs. Whichever side is crowded pays for the privilege.
How it works
The rate is computed every hour or every eight hours from the gap between the perp price and spot. It gives traders a reason to take the unpopular side, which closes the gap.
In Continuum
Continuum has no funding rate. Nothing is transferred between longs and shorts on a schedule, and being on the crowded side costs you nothing. Holding is not free on both legs, though. The short token carries a volatility decay that marks its NAV down as realized volatility accrues, paying for the convexity a long/short pair is exposed to. Three differences from funding: it tracks realized volatility rather than positioning, it only ever moves one way, and it never touches the long leg. Long positions carry no holding cost.
Related terms
Futures contracts with no expiration date that track an underlying asset.
A token that tracks the price of another asset without requiring ownership of the underlying.
Buy the same thing cheaply in one market, sell it dearly in another, keep the difference.
More trading terms
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