Understanding Funding Fees and Negative Funding Fees in Perpetual Contract Trading

Funding Fees are an essential mechanism in perpetual contract trading, helping to maintain the balance between market price and trading price. When holding a position, you may pay or receive a Funding fee depending on the trading direction and market conditions. Interestingly, when the funding fee is negative, you will be the recipient of money instead of paying, creating an opportunity to profit from this mechanism.

What Is a Funding Fee? How Does the Negative Funding Fee Mechanism Work?

Funding fees are exchanged directly between buyers and sellers at the end of each fee cycle. With a standard 8-hour cycle, payments occur at 12AM UTC, 8AM UTC, and 4PM UTC (corresponding to 7AM, 3PM, and 11PM Vietnam time).

The trading direction depends on the Funding rate:

• When the rate is positive: Long position holders pay Short position holders
• When the rate is negative: Short position holders pay Long position holders (negative funding fee)

It’s important to remember that you only pay or receive the Funding fee if your position exists at the time of settlement. If you fully close your position before the fee occurs, you will not be affected by that fee cycle.

How to Calculate Funding Fees for Three Types of Contracts

Inverse Contracts

For inverse contracts, the position value is calculated by dividing the contract amount by the reference price:

Position Value = Contract Quantity / Reference Price

Funding Fee = Position Value × Funding Rate

Example: Trader A holds 10,000 BTCUSD contracts with a reference price of $8,000 and a fee rate of 0.01%.

• Position Value = 10,000 / 8,000 = 1.25 BTC
• Funding Fee = 1.25 BTC × 0.01% = 0.000125 BTC

With a positive rate of 0.01%, the long position holder pays 0.000125 BTC to the short. Conversely, if the rate is negative, the short pays the long.

USDT Perpetual Contracts

The calculation for USDT contracts differs in that the position value is the product of the contract amount and the reference price:

Position Value = Contract Quantity × Reference Price

Funding Fee = Position Value × Funding Rate

Example: Trader holds 10 contracts of BTC with a reference price of $8,000 USDT and a fee rate of 0.01%.

• Position Value = 10 × 8,000 = 80,000 USDT
• Funding Fee = 80,000 × 0.01% = 8 USDT

When the rate is positive, the buyer pays 8 USDT to the seller. When the funding fee is negative, the payment direction reverses.

USDC Perpetual Contracts

USDC contracts use a similar formula to USDT:

Position Value = Contract Quantity × Reference Price

Funding Fee = Position Value × Funding Rate

Example: With 10 BTC contracts, a reference price of $50,000, and a fee rate of 0.01%:

• Position Value = 10 × 50,000 = 500,000 USDC
• Funding Fee = 500,000 × 0.01% = 50 USDC

The buyer pays 50 USDC when the rate is positive, or receives 50 USDC when the funding fee is negative.

When Does Negative Funding Fee Occur, and When Do You Receive Money Instead of Paying?

Negative funding fees occur when the Funding Rate turns negative. In this case, short position holders pay long position holders. This presents an opportunity for buyers to be compensated by sellers.

Negative funding rates typically appear when selling pressure exceeds buying pressure, causing the contract price to fall below the spot price. If you are a buyer during this period, you not only have potential profit from price differences but also receive periodic fees from sellers.

Margin Management and Liquidation Risks

Funding fees are deducted from your available balance. If your balance is insufficient, the system will deduct from your margin, increasing the risk of liquidation. The liquidation price may deviate more from the reference price.

If your margin is insufficient to cover the funding fees, your margin can go negative. This happens when unrealized profits are not enough to sustain your position. However, increasing your available balance can reduce this risk. Each trading symbol has its own cycle and funding rate limits, which can be temporarily adjusted during significant market volatility.

Important Note on Payment Timing

Due to the complexity of the funding fee settlement process, the system requires a few seconds to complete all transactions between buyers and sellers. Therefore, opening or closing a position within 5 seconds before or after the funding time does not guarantee inclusion or exclusion from the fee payment/receipt. The platform will not provide refunds for these cases, as trading partners have also experienced similar delays.

How to Check Your Funding Fee History

You can view your Funding Fee data from the Trading History and Trade Log in your Unified Trading Account (UTA).

Via Trading History

From the Orders menu in the navigation bar, select Unified Futures Trading → Futures Contracts → Trading History. Set the Order Type column to Funding to see the rates and amounts. Note: positive fees mean you paid, negative fees mean you received.

Via Trade Log

Navigate to UTA Trade Log and filter the transaction type to Funding Rate Settlement. The Funding column will display the fees paid or received at each settlement period. Negative funding fees will be clearly shown, indicating periods when you were compensated instead of paying.

Understanding the funding mechanism, especially negative funding fees, will help you optimize your trading strategies and manage risks more effectively.