What is Funding Fee? BiKi Perpetual Contracts

BiKi Perpetual Contracts - What is Funding Fee
BiKi Perpetual Contracts – What is Funding Fee

The Funding Fee is a mechanism to anchor the perpetual contracts price to the spot price, here’s how it works: If perpetual contracts trading price is above the spot price, long position traders will pay the funding fee to short position traders, this incentivizes traders to open more short positions and bring down the perpetual contracts trading price, making it closer to the spot price. 

Perpetual contracts have no expiry date and there is no exchange on the underlying assets on the spot, therefore the contract price and spot price may not meet at the same price point.

If perpetual contracts trading price is below spot price, short position traders will pay the funding fees to long position traders, this incentivizes traders to open more long positions and bring up the perpetual contracts trading price, making it closer to the spot price.

How does the funding fee work?

The funding fee occurs everyday at 16:00 with 8 hour intervals , funding fees are exchanged automatically between long and short position traders. For example, if funding rate is positive, long position traders will pay trading fees to short position traders, vice versa, if the funding rate is negative, short position traders will pay trading fees to long position traders. 

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