KCEX Newbie Academy｜What is the Funding Rate?
The Funding Rate is a unique fee mechanism in cryptocurrency perpetual contract trading. It helps ensure that the perpetual contract price stays closely aligned with the spot market price.
Since perpetual contracts have no expiry date, the funding rate balances long and short sentiment in the market to stabilize prices.
1. How Does the Funding Rate Work?
In perpetual contracts, the contract price often deviates from the spot price:
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When the contract price is higher than the spot price, the funding rate is positive.
In this case, long position holders pay a funding fee to short position holders, pushing the contract price closer to the spot price. -
When the contract price is lower than the spot price, the funding rate is negative.
Then, short position holders pay the funding fee to long position holders, pulling the contract price back up.
This fee mechanism keeps perpetual contract prices aligned with the actual market price.
2. Settlement Times and Calculation
On the KCEX platform, the funding rate is calculated every 8 hours—three times a day:
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00:00 (UTC)
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08:00 (UTC)
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16:00 (UTC)
At each settlement, the funding rate is determined by the deviation between the contract and spot prices.
For example, if the funding rate is 0.02%:
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A trader with a $5,000 USDT long position pays 1 USDT to the short position holder.
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If the rate is negative (e.g., -0.02%), shorts pay longs.
Funding fees are automatically deducted or credited to your contract account balance at settlement.
3. Where to Check the Funding Rate?
The KCEX perpetual contract interface shows:
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The current funding rate value
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Countdown to the next funding rate settlement
Monitoring the funding rate helps traders better manage their trading costs.
4. How Does the Funding Rate Impact Trading Strategies?
The funding rate directly affects trading costs:
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If the rate stays positive, long traders may face higher holding costs—consider reducing leverage or shortening holding time.
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If the rate stays negative, short traders face similar issues.
Some traders also use funding rate arbitrage strategies to profit from funding payments, but this requires careful risk management to avoid losses from market price swings.
5. Reminder
Although the funding rate may seem small, large positions and high leverage can make its cost significant. Always understand the funding rate mechanism and manage risks effectively.
Disclaimer:
This content is for educational purposes only and does not constitute any investment or trading advice. The KCEX platform reminds traders to fully understand trading risks and bear any resulting gains or losses.