# Perpetual Futures Funding Rate

Funding rates are a mechanism used to keep the price of a perpetual futures in-line with spot prices. They are periodic payments that are transacted between the long or short traders peer-to-peer. Aevo exchange does not charge a fee on the funding.

The funding payments are made every 1 hour.

## Funding Rate Calculation

The new funding rate calculation will be used starting from 1st August 2024, 10am UTC.

### Summary of Variables for Funding Rate

Variable | Description |
---|---|

Interest rate | Fixed to 0.01% for most assets (see exceptions below). This is equivalent to the cost of borrowing spot crypto. |

Impact Notional | Fixed to 10,000 USD for most assets (see exceptions below). This is the notional amount used to calculate the average execution price for Impact Bid/Ask Price. |

Impact Bid Price | The average execution price of a sell order with Impact Notional when it is executed on the bids. |

Impact Ask Price | The average execution price of a buy order with Impact Notional when it is executed on the asks. |

Premium Index | The % difference between the Impact Price and Index Price. |

Average Premium Index | This is the weighted average of the Premium Index over an hour period, sampled once every 5 seconds. |

Funding Interval | The Interval used to divide the resulting funding rate. |

Funding ceiling / floor | Describes the maximum and minimum of the funding rate. |

### Premium Index

Premium Index can be calculated with the formula below:

### Calculating Average Premium Index

Premium Index samples are collected every 5 seconds, summing to 720 samples in an hour. Using the Premium Index samples, the Average Premium Index can be calculated with a weighted average.

### Clamp

The clamp function (x, min, max) ensures that if x is less than min, it is set to min; if x is greater than max, it is set to max; and if x is between min and max, it remains unchanged. Similarly, as long as the Premium Index ranges from -0.04% to 0.06%, the Funding Rate will be fixed at 0.01% (the Interest Rate).

Examples of clamping:

### Funding Ceiling and Floor

The funding ceiling and floor is a setting specific to the asset. For example, BTC-PERP has a funding cap of 3%/-3%. A clamp function (as described above) is applied onto the funding rate.

### Funding Interval

Funding is paid every hour. However, the calculated funding rate calculated is divided by 8 hours. This is the standard Funding Interval setting. **Note: the Funding Interval is applied after the Funding Cap.**

For the specific instruments listed below, the Interval is set to 4 hours: **HIFI-PERP, NMR-PERP, TRB-PERP, BLZ-PERP**. In situations of extreme market volatility, Aevo retains the authority to modify the funding interval of a perpetual contract, deviating from the standard 8-hour interval.

## Funding Rate Example

Here is an example of the calculation:

A trader is holding a 8 long contracts of BTC-PERP.

First, we have to calculate the Premium Index of the BTC-PERP.

We find that the Premium Index is 0.0333... (3.33%). For simplicity, we assume that this Premium Index is the Average Premium Index. A reminder on what Average Premium Index is - it is the weighted average of the Premium Index over the span of 1 hour.

Next, we can calculate what the funding rate using the Average Premium Index:

Lastly, once we have the 8-hour funding rate, we can apply some system parameters to acquire our 1-hour funding rate.

The trader holding the +8 BTC-PERP position will be charged 0.00375 (or 0.375%) per hour.

To get the USDC value of the funding payment, we need to multiply the funding rate by the index price and position size. The resulting USDC value of the funding will be charged on the account is 450 USDC.

We use the Index Price to determine the USDC value of the funding payment, not Mark Price.

## [DEPRECATED ON 01 AUGUST 2024] Legacy Funding Rate Calculation

The funding rate for every funding period can be calculated as below:

The default setting for `FundingIntervalHours`

is 8 hours, which closely aligns with the approach adopted by centralized perpetual exchanges.

However, for the specific instruments listed below, the current value is set to 4 hours: HIFI-PERP, NMR-PERP, TRB-PERP, BLZ-PERP. In situations of extreme market volatility, Aevo retains the authority to modify the funding interval of a perpetual contract, deviating from the standard 8-hour interval.

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