Hello! I am Short Maestro. I decided to make a new series, Futures Trading 101. Basic/Intermediate/Advanced knowledge that you MUST know to trade Futures.

Surprisingly, most traders do not even know intermediate, or basic knowledge I will be posting. Why? Because they never read the fine print! There are help pages, provided by Binance literally accessible right from the trading menu.
There is "Binance Academy", which also explains 99% of the basic features. But let's be real, most of you seeing this never even bothered to take a look. For example, if you are questioning what actually happens when you get liquidated, or how leveraged trading works. "Who is borrowing me this money if I go long?" "What actually happens when I Short a coin? Why do I make money when price goes down? huh?" << Is this you?
Don't worry, better late than never. This series is exactly for people like you. Today, on the first post of the series, I will be explaining Funding Fees, easy to understand, but detailed enough to know everything you need to know. This is free, so if you are interested keep reading.

Ok, so what is Funding Fee? It's this thing right here. (Actually, this is the Funding Rate, which determines the Funding Fee.)

Perpetual futures are a type of derivative contract that allows traders to speculate on the price movements of an underlying asset, without having to own or deliver the asset. Unlike traditional futures contracts, which have a fixed expiration date and settlement price, perpetual futures have no expiry and are constantly adjusted by a mechanism called the funding rate. CRYPTOCURRENCY DERIVATIVES: CRYPTOCURRENCY PERPETUAL CONTRACTS , Ken Kapner

So.. what does "Perpetual" imply here? No expiry date. Huh, seems amazing for speculation.. but also has many issues, probably. And that issue is: The perpetual futures price may not match the spot market price. Also, since longs (leveraging , or betting on the coin increasing in price) essentially borrow money to buy their coins, they need to pay interest rates. This is why the default funding rate is 0.01%. Even if the underlying asset's price is the same as futures price, longs still pay shorts. Because Binance assumes that borrowing FIAT currency is more expensive than borrowing crypto. Which is true.

How is funding rate calculated? The complex equation is not necessary to memorize, just understand that higher (positive) funding rate means there are more longs than shorts, and the futures price is higher than spot price. Longs pay short. And vice versa for negative funding fee. Shorts pay long.
Most coins with the highest market cap, such as BTC, ETC, almost always have positive funding rate. Except BNB. This thing has negative funding rate, which makes this a good opportunity to go long... (Will explain later)
Anyways, this means longs pay shorts, every 8 hours (Some trading pairs use 4 hours). The funding fee is paid almost exactly as the timer is 0, with around 1 min of delay. This means that if you close your position immediately before the funding fee countdown, you actually don't pay or receive the funding fee. Note that the 1min delay needs to be taken into account.
How much is 0.01% though? That's not really a lot... Also, 0.01% of what exactly? My investment capital? Or the price of the asset? Nope.
The fee is calculated based on your position size, not your margin size. Because every day is 24 hours, (obviously) and funding fee is 8 hours, that's 3 funding fee payment per day. Assume 0.03% funding fee/day, and then you have to multiply it with YOUR LEVERAGE. So, if 5x, that is 0.15% per day. Now that suddenly feels like real business. Yeah, it isn't a joke anymore.

0.15% per day? That's.. 54.75% per year. So longs, with 5x leverage, at 0.01% funding rate (Default), needs to pay 54.75% of their investment margin (The real money put into the position) yearly! This is one of the major reasons I go short. I get paid 54.75% per year!
Even if the market pumps, but pumps very slowly with awkwardly high funding fee, I get passive income. And even if my unrealized PNL for the short position is still minus, I can get more than the loss just by waiting.
Some extreme example, if you shorted BTC at.. like 30k, about 2 years ago, and have a liquidation price of around 100k, you actually made more money than your unrealized PNL by now. Just by funding fee alone! Of course, this doesn't matter if you get liquidated first. Another reason to go low leverage.. which is something I mention every day.
Even better, if market dumps, I make profit BOTH from the short position itself AND funding fee. Wow! Or I can reduce the loss from the short position and make decent profit overall.
So essentially, these longs are giving me money every 8 hours by breathing air. Funding fee literally drains your money. Or pumps your bank account. This is why longs are usually pressured to sell. They can't afford to hold, especially if funding fee is higher than default. For example, when BTC reached ATH of 74k, funding rate was around... 0.1%. That's 10x more than the default.
By shorting BTC at 5x, I legit got 0.5% of my investment every 8 hours. 1.5% per day. I invested $100k, so... that's $1500 per day by breathing air. Who pays for it? The longs who are still going long at 74k. (They all got liquidated in the end, after paying all that funding fee lmao)

So, this "Funding Fee" obviously provides significantly higher yield than any bank interest.. They give you like what, 7% yearly? Maybe higher if you got better deals but still, it's a joke. Or Bonds, like US Treasury Bonds. They don't generate 0.15% per day.
This funding fee system is a great way to generate passive income, and also make lots of money with the position itself if you have skills. Another thing to mention is, you can close the position at any time, so your money is not locked unlike bonds or certain savings accounts for banks. Depends on countries, but certain banks don't let you withdraw money from your savings account until expiry date, or else you don't get the promised interest rate, etc.. Locked money is the worst money.
Now you know how importnat funding rate is. Funding fee really adds up. How to check funding fee? There is a "Funding & Transaction" tab at "PNL Overview" for Futures. Go to Dashboard first if you don't even know where Futures PNL overview is at. You can also see "Transaction Fee Allocation" here... this is another topic, but yeah. You would be surprised to see how much fee you have paid. It's probably almost the same as your entire account balance if you traded for more than a year.

Now, explaning BNB long position I mentioned, BNB has a negative funding fee (Usually). As I write this article it's at a whopping -0.09%! That is a LOT. Negative funding fee means SHORTS PAY LONG. And if you read my posts, you know that I really support BNB. BNB is related to the transaction fee issue which I mentioned above briefly. BNB will go up in price, BNB is basically Binance Token. You see this post on Binance? Then obviously BNB won't be dumping any time soon, or crash. BNB will crash if Binance goes byebye. If Binance goes byebye all our investment is byebye. You have your money and crypto at Binance, so I am confident you also trust Binance, right?
YET for some reason, this thing has a massive negative funding rate. So you can go long AND make money while waiting for profit. This is a double deal!! Maybe you should go long on BNB. Not financial advice.

Well, that's it for funding fees. Hopefully this helped. Tip some $$ to support me. I am helping you make money, if I actually did help you make money then yeah... Slip me some.

SUMMARY: Funding fees are a geniuine method of making passive income. They also work the other way around, sucking your money like a black hole to be someone else's passive income. So take it deeply into consideration when trading Futures.