Funding Fee
Funding is the primary mechanism to ensure MUFEXβs last traded price is always anchored to the global spot price.
On MUFEX,
The funding fee is exchanged directly between buyers and sellers at the end of every funding interval*. Using an 8 hour funding time interval as example funding will occur at 16:00 UTC, 00:00 UTC and 08:00 UTC.
When the funding rate is positive, long position holders pay the short position holders. Likewise, when the funding rate is negative, short position holders pay the long position holders.
Traders will only pay or receive funding fee if they hold a position at one of these times.
If positions are entirely closed prior to the funding exchange then traders will not pay or receive funding fee.
The funding fee charged will be deducted from trader's available balance. In the event where trader has no sufficient available balance, the funding fee will be deducted from the position margin and the liquidation price of the position will be more prone to the mark price. The risk of liquidation will increase.
*Every trading symbol will have its own funding time interval and MUFEX may adjust the funding time interval based on live market situation when there is a significant price gap between Last traded price and Mark Price.
Funding Fee is calculated as follows:
Funding Fee = Position Value * Funding Rate
Position Value = Quantity of Contract * Mark Price
Example:
Trader A holds a long position of 10 BTC contracts and the Mark Price is 18,000 USDT at the funding timestamp with the current funding rate at 0.01%.
First, letβs calculate the Position Value:
Position Value = 10 x 18000 = 180,000 USDT
With the Position Value, letβs calculate the Funding:
Funding Fee = 180,000 x 0.01% = 18 USDT
As the funding rate is positive (0.01%), the long position holders have to pay the short position holders. Hence, Trader A has to pay a funding fee of 18 USDT and a short position holder with the same quantity of contracts will receive 18 USDT.
The funding rate is calculated as follows:
The funding rate consists of two components: interest rate and premium index.
1. Interest Rate:
Each contract on the platform consists of two currencies: the base currency and the quote currency. The interest rate refers to the rate between these two currencies, indicating the changes between the quote currency (e.g., USD) and the base currency (e.g., Bitcoin) during the funding timestamp.
2. Premium Index:
Perpetual contracts may have a significant premium or discount relative to the mark price. In such cases, the premium index is used to adjust the funding rate for the next funding period.
Premium Index (P) = [Max(0, Impact Bid Price - Mark Price) - Max(0, Mark Price - Impact Ask Price)] / Mark Price
Impact Bid Price = Average price when the buy queue reaches the "impact margin notional"
Impact Ask Price = Average price when the sell queue reaches the "impact margin notional"
Mark Price is the weighted average of the underlying spot assets listed on major cryptocurrency exchanges.
Impact Margin Notional (IMN) is used to determine the average price of the impact bid or ask prices in the order book.
Average Premium Index (P) = (1 * Premium Index_1 + 2 * Premium Index_2 + 3 * Premium Index_3 + ... + n * Premium Index_n) / (1 + 2 + 3 + ... + n)
3. Funding Rate:
The initial funding rate is calculated based on the interest rate and premium index over the last 8 hours.
Funding Rate (F) = Average Premium Index (P) + Clamp(interest rate - Premium Index (P), 0.05%, -0.05%)
*Here, Premium Index (P) refers to the current average premium index.
The final funding rate is calculated based on the initial funding rate, the previous funding rate (T-1), initial margin, and maintenance margin. The funding cost or payment is settled based on the final funding rate at the funding timestamp.
By applying the final funding rate calculated above to the trader's position, the funding cost to be paid or received by the trader at the funding timestamp can be settled.
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