Mechanism of Funding Rate for Perpetual futures

[BrownSuS]

Perpetual future contracts brings revolution in the futures market with endless limit of future contract. For making the contract with endless expiry date, the concept of Funding Rate came into existence. Under this mechanism the buyer or seller will either pay or receive funding on periodic bases.
 
It is consists of two components-
a) The Interest rate
b) Premium

 Basically on Binance futures, the Interest rate is 0.03% per day (recalculated three times in 8Hrs circles of 0.01% each)and the premium varies with the mark price to prevent the increasing difference between the prices of perpetual contract price and spot market.

Here shows the funding rate and countdown period in the image when it is on marked price.


Funding rate includes Premium the price also


source- BINANCE


Example of profit or loss due to Funding rate to the traders-

 If the traders gets into the long position at $10 and its on $11 after 8hrs, so the long position holder trader has to pay funding rate to the short position holder, but after that if the price goes down to less than $10 , then the short position holder has to pay funding rate to prevent the lasting divergence of the price in both the markets.

So, with this mechanism crypto traders get rid of traditional future contracts with specific expiry date

[drlukacs]

Well, that is exactly why the classical traders in the stock market have turned to the Crypto market to trade futures. I was also quite curious about futures trading contracts before. If that exchange does not have enough volume our contract will be very difficult to cancel the order.
But in Binance, things are different, settling out contracts in seconds without worrying about daily trading volume. I have experienced trading contracts in many top exchanges but Binance alone is the best, it is very rarely laggy and contracts are paid out reasonably and without any errors.
Anyway, thank you very much for providing information about transaction fees as well as a basic guide so that newbies can better understand this Binance trading mechanism.

[crwth]

I think this is another helpful thread for those interested in the possible long-term holding of positions. The topic I linked below talks about where is the best exchange to hold a long-term position.

https://bitcointalk.org/index.php?topic=5293948.0

Anyways, maybe you could create another post for other exchanges and show examples? It would be easier to understand for users who are getting into trading.