Funding Rates mechanism in Futures trading

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What is the Funding Rate?

Funding rates are periodic payments between traders to make the perpetual futures contract price close to the index price, or the underlying crypto constituting the futures contract. A perpetual futures contract is an agreement to buy or sell an asset at a predetermined price without an expiration date on the contract.

When the the funding rate is positive, traders who are long on a perpetual contract will pay a funding fee to traders on the opposing side. On the other hand, when funding rate is negative, traders who are short on a perpetual contract will pay a funding fee to long traders.

Why is this important?

The funding rate is primarily used to force convergence of prices between the perpetual contract and the underlying asset.

Unlike traditional futures, perpetual contracts have no expiration date. Thus, traders can hold positions to perpetuity unless he gets liquidated. As a result, trading perpetual contracts are very similar to spot trading pairs.

As such, crypto exchanges created a mechanism to ensure that perpetual contract prices correspond to the index. This is known as Funding Rate.

How are Funding Rates calculated?

Funding rates are calculated using the following formula:

Funding Amount = Position Volume × Funding Rate

(Position Volume = Market Price x Size of Contract)

Basic Funding Rate and Flexible Funding Rate

In order to better adapt to market developments and balance actual trading status on Nami Exchange, from 2023-10-12 08:00 (UTC), Nami Exchange applied a flexible funding mechanism for all Futures trading contracts.

Specifically:

For each trading contract, 02 different funding rates will be applied to 2 trading directions: the basic funding rate is referenced from major exchanges and the flexible funding rate for the opposite direction is calculated based on the actual trading volume ratio at funding time
The actual trading volume ratio across all trading contracts of an asset will be aggregated every 10 seconds and announced in the Funding Information section of each trading contract and published in the Real-time Funding Information and Funding History section of each trading contract. Track all funding rates here.
Formula to calculate flexible funding rate:

Flexible funding rate = |Basic funding rate| x Ratio of trading volume from the side paying / trading volume from the side receiving

No matter the Long Short trading volume ratio, the flexible funding rate does not exceed the absolute value of the basic funding rate
The two Funding rates always have the same sign of (+)/(-) to represent the direction of paying and receiving funding
The two Funding rates will have approximately the same absolute value when the trading volume on the paying side is greater than or equal to the trading volume on the receiving side at the time of payment.
The first funding time to apply the new funding mechanism is 2023-10-12 08:00 (UTC)
Please note that Nami takes no fees from funding rate transfers as funding fees are transferred directly between traders.

Example of Basic and Flexible Funding Rate:

1.The trading contract X/USDT has basic funding rate of 2 %, actual Futures Trading Volumes cross the whole Nami Exchange at the funding time are 1,000,000 USDT of Long and 2,000,000 USDT of Short (The ratio of Paying / Receiving = 1/2)

The Long side (paying funding) will pay a funding fee at basic funding rate of 2% and funding value of 2% x Trading volume of open positions
The Short side (receiving funding) will receive funding at flexible funding rate of 2% x 1/2 = 1% and the funding value of 1% x Trading volume of open positions

2.The trading contract X/USDT has basic funding rate of 2 %, actual Futures Trading Volumes cross the whole Nami Exchange at the funding time are 2,000,000 USDT of Long and 1,000,000 USDT of Short (The ratio of Paying / Receiving = 2)

The Long side (paying funding) will pay a funding fee at basic funding rate of 2% and funding value of 2% x Trading volume of open positions
The Short side (receiving funding) will receive funding at flexible funding rate of 2% and the funding value of 2% x Trading volume of open positions

Important Notices

Funding fees (if any) will be deducted from the available balance in your Futures Wallet. If you have an insufficient available balance in your Futures Wallet, the funding fees (if any) will be deducted from your position margin, which may affect your liquidation price. Please manage your positions accordingly to avoid any liquidation risks.
Traders are only liable for funding payments in either direction if they have open positions at the pre-specified funding times. If traders do not have a position, they are not liable for any funding. If you close your position prior to the funding time, you will not pay or receive any funding.
There is a 15-second deviation in the actual funding fee transaction time. For example, when a trader opens a position at 08:00:05 UTC, the funding fee could still apply to the trader (either paying or receiving the funding fee).
Users can tracking the information of funding rates and other trading rules for each pair on Infor tab
The countdown to the Funding Time has a value of reference only, the actual Funding Time will depend on the system time from the server
Futures trading around the Funding Time is very risky because the asset price fluctuates strongly, there is a rate of market order mismatch and the system needs a longer time to process the market orders than usual, users need to consider carefully before opening positions around those time.

Adjustment of Funding Interval

By default, funding payments occur every 8 hours at 00:00 UTC; 08:00 UTC and 16:00 UTC for all Futures perpetual contracts. In the event of extreme market volatility, Nami reserves the right to update the funding interval of a perpetual contract that differs from the default 8-hour funding interval as described below.

In the event of extreme market volatility, Nami reserves the right to update the funding interval of a perpetual contract that differs from the default 8-hour funding interval. Users can visit the Real-Time Funding Rate and Funding Rate History pages to find out the latest funding interval.

Funding Interval	Funding Time (UTC)
8 hours	0, 8, 16
4 hours	0, 4, 8, 12, 16, 20
2 hours	0, 2, 4, 6, 8, 10, 12, 14, 16, 18, 20, 22
1 hour	0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23

To understand clearly, users can refer to the following example:

You have a Long position with the BTC/USDT contract with a volume of 0.5 BTC. At the time of funding, the BTC price was 30,000 USDT, the position volume at that time was 0.5 x 30,000 = 15,000 USDT, the trading volume ratio between the two directions Long / Short was approximately, meaning the basic funding rate was nearly equal to the flexible funding rate

Let's say the basic funding rate right now is -0.0025%. That means users who have opening Short position will have to pay a funding fee, users who have opening Long position will receive funding, you will receive funding worth 15,000 x 0.0025% = 0.375 USDT from the Short side at the above time. .

How to check Funding Rate on Nami Exchange website?

Step 1: Access Funding Rate History site

Option 1: Access the Nami.Exchange, select the Funding Rate History in Trading Info section at the footer

Option 2: Click to the Funding info at the Futures interface, then click Funding History

Step 3: tracking Real-time Funding Rate and Funding History of all contracts

How to check Funding Rate on Nami Exchange application?

Step 1: Access the Nami Exchange application, open NAO Futures or NAO Plus and select Funding info on the toolbar. Then select Funding History