Many newcomers will have some questions when they see the funding rate. I have sorted it out and used last year's TRB as an example to explain it. Brothers who don't understand, remember to save it after reading it! ​

1. What is the funding rate? The funding rate refers to the periodic fee paid to long or short traders based on the difference between the market price of the perpetual contract and the spot price. When the market trend is bullish, funding rates are positive and will increase over time. In this case, the long perpetual contract trader will pay the funding fee to the opposing trader. Conversely, when the market is bearish, the funding rate is negative, and it is the short traders in the perpetual trade who pay the funding fees to the long traders. The funding fee is not a fee charged by the exchange, but is paid between the long and short positions, making the transaction price close to the spot index price. The positive or negative funding rate determines which party needs to pay. To put it simply, the exchange does not charge any funding fees, and the money is transferred back and forth between users.

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2. How is Binance’s funding rate calculated?

Funding rate is calculated using the following formula:

Funding amount = Notional value of position x Funding rate

(Notional value of position = Mark price x number of contracts held)

Binance does not charge any fees from the funding rate, and the funds are transferred directly between users.

​ All perpetual contracts on Binance Futures are funded every 8 hours, at 00:00, 08:00, and 16:00. Funding is only charged if the trader has any open positions at the scheduled funding time. If the trader does not have any open positions at the time, no funding is charged. If you close your position before the scheduled funding time, you will not receive or pay any funding.

Today we have taken trb as an example. If the current trb contract rate is -2.5% (full contract rate), if you are shorting BLZ, the margin is 1000U, and the multiple is 8, then every 8 hours, your position will be multiplied by 8000U times 2.5% = 200U. If the rate is always maintained at the base of -2.5%, then every 8 hours, 200U will be deducted as a subsidy to the long traders. Friends who play contracts must pay attention to the opening time. For trading pairs with extremely high rates, you can close the position in time before the rate settlement, and reopen the position after the rate settlement time, which can save a lot of handling fees.

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3. How to find trading opportunities through contract rates (altcoins) Pay attention to the altcoins with rapidly increasing rates in the market. If the contract rates increase rapidly in a short period of time (generally negative rates), it proves that the number of people opening short positions in the market is increasing. If there is a high explosive growth like YGG, BLZ, and LPT that were violently pulled up a few days ago, and the rates of the currencies have reached their peak, then you can rest assured to build a spot collection at this time. There is a high probability that there will be a good rate of return. However, the risk is relatively high and you cannot gamble with a large position.

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4. Why can you chase positions at high levels after the funding rate has risen significantly? The design here is the thinking of the banker. This type of currency is generally a small-scale copycat currency with a low chip dispersion rate. The banker has the ability to manipulate the market. The banker will first open a large position and then quickly raise the currency price to attract enough liquidity to do the counterparty. If there are a lot of people who open shorts, the banker can make a lot of money in terms of funding rates. Moreover, he has multiple contracts in hand and enough counterparties, which can achieve a win-win situation of rates + contracts, and the losses caused by the spot market pull are nothing to the banker.

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So if you find a currency that is rising rapidly, first observe the market value of the currency, whether there are contracts, whether the contract rate is rising rapidly, and the matching degree between the spot trading volume and the market value. If the spot trading volume is much larger than the currency market value, and the contract trading volume is more than 10 times the market value, then you can consider chasing the spot at a high position, which has a greater probability of obtaining a higher rate of return.