What are funding rates?

To ensure the price of perpetual contract reflects the underlying asset's spot market price, exchanges implement a funding rate mechanism. This mechanism facilitates periodic cash flow exchanges between long and short position holders, aligning the perpetual contract price with the index price. When the funding rate is positive, long positions pay funding fees to short positions. Conversely, when the funding rate is negative, short positions pay funding fees to long positions. Please note that OSL does not charge any fees, as its role is simply to facilitate these payments between traders.

Generally, OSL settles the funding fees every 8 hours, at 00:00, 08:00, and 16:00 (UTC) respectively. Some futures may settle the funding fees every 2 or 4 hours. The settlement frequency may be adjusted dynamically based on market conditions.

Funding rate calculation

Funding rate (F) = Clamp([average premium index (P) + Clamp(interest rate (I) − average premium index (P), -0.05%, 0.05%)] ÷ (8 ÷N), min. funding rate, max. funding rate)

The funding rate consists of 2 components: Interest Rate (I) and Premium Index (P)

OSL calculates the interest rate (I) and the premium index (P) every 5 seconds, then computes a weighted average for each minute over an N-hour funding interval. Data points closer to the funding timestamp receive higher weights.

For a funding fee settlement interval of 8 hours, the average premium index (P) is calculated as follows:

(1 × Premium_Index_1 + 2 × Premium_Index_2 + 3 × Premium_Index_3 + ··· + n × Premium_Index_n) ÷ (1 + 2 + 3 + ··· + n)

*Premium_Index_1: the first premium index, n = 60 ÷ 5 × 60 × 8 = 5,760

The funding rate is calculated based on the N-hour interest rate and the premium/discount component, with a ±0.05% buffer applied.

N = funding fee settlement interval. If funding fees are settled every 8 hours, then N = 8. If funding fees are settled every hour, then N = 1.

So, if (I – P) falls within +/-0.05%, then F = P + (I – P) = I. In other words, the funding rate will be equal to the interest rate.

Interest rate (I)

Interest rate (I) = 0.01%

Premium index (P)

The premium index reflects the difference between the perpetual contract price and the mark price. When there is a noticeable premium or discount, the premium index adjusts the next funding rate upward or downward to bring it in line with current trading conditions.

Premium index (P) = [Max (0, impact bid price − index price) − Max (0, index price − impact ask price)] ÷ index price

Impact bid price is the average fill price to execute the Impact Margin Notional on the bid side.

Impact ask price is the average fill price to execute the Impact Margin Notional on the ask side.

Impact margin notional is the notional value of contracts that can be opened using a fixed margin amount, used to calculate the impact bid/ask price and the depth of the order book. The specific calculation is as follows:

For example, if the minimum maintenance margin rate of BTC-Perp perpetual contract is 5%, Impact Margin Notional for BTC-Perp = 200 USDC ÷ 5% = 40,000 USDC.

Funding fee calculation

Funding fee = position value × funding rate = futures position size × mark price × funding rate

Note: The system calculates the funding fee at settlement based on position value. Settlement follows a “deduct first, distribute later” mechanism. If a payer’s position is liquidated or their margin is insufficient (in isolated margin mode), the counterparty may receive less than the full funding fee amount.

Example

A trader holds a long position of 10 BTC-Perp contracts, with a mark price of 10,000 USDC and a funding rate of 0.01%

First, calculate the position value:

Position value = 10 x 10,000 = 100,000 USDC

Funding fees are calculated based on the position value:

Funding fee = 100,000 x 0.01％= 10 USDC

As the funding rate is positive (0.01%), the long position holder is required to pay the funding fee to the short position holder. Thus, the client must pay a funding fee of 10 USDC, while short position holders with the same amount of futures will receive 10 USDC.

If you experience any issues or require further assistance, please contact the OSL Global Support Team through the app, platform, or by emailing [email protected]