FTX Funding Rate Calculator
Understanding FTX Funding Rate Calculations
In the world of cryptocurrency derivatives, specifically perpetual futures, the funding rate is a primary mechanism used to tether the contract price to the underlying spot price. While FTX is no longer operational, understanding how its funding rates were calculated remains essential for traders analyzing historical data or trading on similar derivative platforms that utilize comparable mechanics.
How the Funding Formula Works
The funding rate calculation determines the periodic payments exchanged between long and short traders. Unlike traditional futures with an expiry date, perpetual contracts do not expire. To ensure the contract price does not deviate significantly from the spot price, exchanges implement a funding fee.
The core formula for calculating the funding payment is:
- Funding Payment = Position Size × Mark Price × Funding Rate
Where:
- Position Size: The amount of cryptocurrency held in the contract (e.g., 2 BTC).
- Mark Price: The current fair market value of the asset used to calculate unrealized PnL and liquidations.
- Funding Rate: A periodic percentage derived from the difference between the perpetual contract price and the spot price (Premium Index) and often an interest rate component.
Interpreting Positive and Negative Rates
The direction of the payment depends on the sign of the funding rate:
- Positive Funding Rate (+): The contract price is trading at a premium to the spot price. Traders holding Long positions pay traders holding Short positions.
- Negative Funding Rate (-): The contract price is trading at a discount to the spot price. Traders holding Short positions pay traders holding Long positions.
Example Calculation
Assume you hold a position of 10 ETH on a perpetual contract. The current Mark Price of ETH is $2,000. The current hourly funding rate is 0.01%.
1. Calculate Notional Value: 10 ETH × $2,000 = $20,000.
2. Convert Rate to Decimal: 0.01% = 0.0001.
3. Calculate Payment: $20,000 × 0.0001 = $2.00.
Since the rate is positive, if you are Long, you pay $2.00. If you are Short, you receive $2.00.
Why is this Calculation Important?
For high-frequency traders or those with large position sizes, funding fees can significantly impact profitability. On FTX, funding payments were typically exchanged every hour, distinct from other exchanges that might settle every 8 hours. This hourly frequency meant that monitoring the FTX funding rate calculation was critical for managing holding costs over time.