A funding rate is the fee that a trader pays or receives for holding a leveraged position overnight. The funding rate is calculated by taking the interest rate differential between the two currencies involved in the trade, and then multiplying it by the size of the trade and the number of days the trade is held.
For example, let’s say that you buy 1 BTC worth of ETH/USDT contracts with leverage on Binance Futures, and you hold the position for five days. The interest rate differential between ETH and USD is 3.5%. The size of your position is 1 BTC, and the number of days you hold the position is 5.
Therefore, your funding rate would be (3.5% * 1 BTC * 5) / 5 = 0.035 BTC.
If the funding rate is positive, then the trader pays the funding rate to Binance; if the funding rate is negative, then Binance pays the funding rate to the trader. The funding rate is charged or paid every eight hours at 00:00, 08:00, and 16:00 UTC.
The funding rate can be a useful tool for traders because it allows them to earn or pay interest on their positions. However, traders should be aware that the funding rate can also lead to situations where a losing trade becomes a winning trade, or a winning trade becomes a losing trade.
NOTE: Warning: It is important to understand the risks of using Binance Funding Rates before engaging in any trading activity. These can be complex instruments and there is a possibility of substantial losses if not used correctly. It is recommended that you seek professional advice prior to investing in Binance Funding Rates.
The following is an example of how this can happen:
Let’s say that you buy 1 BTC worth of ETH/USDT contracts with leverage on Binance Futures, and you hold the position for five days.
If ETH goes up by 2% during those five days, then your position would be worth 1.02 BTC when you close it out. However, because you were charged a funding fee of 0.035 BTC, your net profit would be 1.
02 – 0.035 = 0.985 BTC.
On the other hand, if ETH goes down by 2% during those five days, then your position would be worth 0.98 BTC when you close it out.
However, because you were charged a funding fee of 0.035 BTC, your net loss would be 0.98 – 0.
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Binance Funding Rate is the fee charged by Binance for providing leverage to traders. This fee is charged every 8 hours and is based on the following formula:
Funding Rate = [(Interest Paid – Interest Charged) / (Leverage * Notional Value)] * 100%
The Interest Paid is the interest that accrues on the trader’s account over the 8-hour period. The Interest Charged is the amount of interest that Binance charges for providing leverage.
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