Master the Funding Fee Mechanism and How to Manage Trading Costs

Funding Fees are one of the most important factors traders must understand when participating in the futures market. This mechanism primarily ensures that the trading prices of perpetual contracts stay close to the global spot price, similar to interest rates when holding positions in traditional financial products. Understanding how funding fees are calculated not only helps you estimate trading costs but also is key to optimizing long-term profits.

How Funding Fees Work

Funding fees are exchanged directly between buyers and sellers at regular intervals. On most exchanges, the funding cycle occurs every 8 hours, at 12AM, 8AM, and 4PM UTC (which corresponds to 7AM, 3PM, and 11PM Vietnam time).

The basic rules of funding fees are simple:

When the funding rate is positive (+): Long position holders pay short position holders. This encourages reducing long positions when the market is overheated.

When the funding rate is negative (-): Short position holders pay long position holders.

Important to remember: you only pay or receive funding fees if you are holding a position at the time the fee is paid. If you close your position entirely before the payment cycle begins, you will not be liable for this fee.

How to Calculate Funding Fees by Contract Type

Inverse Contracts: Calculated by Coin Quantity

For inverse contracts, the funding fee is calculated as:

Funding Fee = (Number of Contracts / Reference Price) × Funding Rate

Example: Trader A holds 10,000 BTCUSD contracts with a reference price of $8,000 at the current funding time, with a funding rate of 0.01%.

Step 1: Calculate position value (in BTC) = 10,000 / 8,000 = 1.25 BTC

Step 2: Calculate funding fee = 1.25 BTC × 0.01% = 0.000125 BTC

Since the rate is positive, Trader A pays 0.000125 BTC, while short position holders of the same size receive the corresponding amount.

USDT Contracts: Calculated by Stablecoin Units

Funding fees for USDT contracts are calculated slightly differently:

Funding Fee = Number of Contracts × Reference Price × Funding Rate

Using the same trader A, but now holding 10 contracts with a reference price of $8,000 and a funding rate of 0.01%:

Step 1: Position value = 10 × 8,000 USDT = 80,000 USDT

Step 2: Funding fee = 80,000 × 0.01% = 8 USDT

When the rate is positive, Trader A pays 8 USDT, and short position holders receive 8 USDT from this fee.

USDC Perpetual Contracts: Similar Calculation as USDT

Funding fee in USDC perpetual contracts uses the same formula:

Funding Fee = Number of Contracts × Reference Price × Funding Rate

Example: Holding 10 BTC contracts, reference price $50,000, funding rate 0.01%:

Step 1: Position value = 10 × 50,000 = 500,000 USDC

Step 2: Funding fee = 500,000 × 0.01% = 50 USDC

With a positive rate, you pay 50 USDC, and the seller receives the corresponding amount.

Important Things to Know About Funding Fees

Funding fees are deducted from your available balance. If your balance is insufficient, the system will deduct from your margin. This is risky because it reduces your margin buffer, increasing the chance of liquidation.

Funding rate limits can change. Each trading symbol has its own funding cycle and rate limits. During volatile market conditions, exchanges may temporarily adjust the upper and lower limits of the funding rate to encourage prices to return to reasonable levels.

Timing around the funding moments is critical. Due to the complexity of funding fee settlements, the system needs a few seconds to complete all exchanges. Opening or closing positions within 5 seconds before or after the funding timestamp does not guarantee you will avoid or receive the fee as expected.

Funding Fee Management Strategies

Maintain sufficient available balance: This is the most important step. By keeping excess margin, you ensure that funding fees are deducted from your reserve rather than your position margin, reducing liquidation risk.

Monitor current funding rates: Before entering a position, check the funding rate. If it’s too high (especially a very high positive rate when you are long), consider waiting until it decreases.

Estimate costs before trading: Calculate how much you will pay or receive in funding fees per cycle. This helps you understand the actual break-even price of your trade.

How to Track Your Funding Fee History

Via Trading History

From the Orders menu in the navigation bar, select Derivative Orders → Futures → Trading History. Then, set the Order Type column to “Funding” to view the fee rates and amounts.

Note: Positive fees = you paid fees, Negative fees = you received fees.

Via Transaction Log

Go to the Transaction Log and filter by “Funding Rate Settlement.” Here, you can see detailed funding fees paid or received during each payment period.

Regularly reviewing these reports can help optimize your trading strategy—such as entering positions when funding rates are low or avoiding positions with excessively high funding costs. Understanding funding fees not only helps manage costs but is also a key factor in building a sustainable and profitable trading plan.