Funding

Funding rates are the mechanism that keeps perpetual futures prices on Margin Trade aligned with the price of their underlying assets.

Funding is a periodic peer-to-peer payment exchanged directly between longs and shorts — Margin Trade does not collect any portion of the funding payment.

When the perpetual contract trades above the spot (oracle) price, the funding rate is positive, and longs pay shorts. When it trades below the oracle price, the funding rate is negative, and shorts pay longs.

Funding ensures that perp prices remain anchored to the fair market value of the underlying asset by incentivizing traders to take the opposite side of imbalanced markets.

---

Structure of the Funding Rate

Each funding rate consists of two main components:

1. Interest Rate Component Represents the difference between the cost of holding USD collateral and the cost of borrowing the underlying asset.

   • Fixed at 0.01% per 8 hours (≈ 0.00125% per hour)

   • Equivalent to ~11.6% annualized APR paid from longs to shorts

2. Premium Component Reflects the deviation between the perp market price and the underlying oracle price.

   • Positive premium → longs pay shorts

   • Negative premium → shorts pay longs

---

Funding Interval

Funding payments occur every hour on Margin Mainnet. The hourly funding payment for each position is calculated as:

funding_payment = position_size × oracle_price × funding_rate

• Positive funding_rate → long pays short

• Negative funding_rate → short pays long

• The oracle price (not the mark price) is used for notional value conversion

---

Funding Rate Formula

The funding rate is calculated according to:

FundingRate = AveragePremiumIndex(P) + clamp(InterestRate - P, -0.0005, 0.0005)

Where:

• P (Premium Index) = average deviation between perp price and oracle price

• InterestRate = 0.000125 (0.0125%) per hour

• clamp(x, a, b) limits the value of x within the range [a, b]

Funding is sampled and recalculated every few seconds, then averaged over each 1-hour interval.

---

Premium Index Calculation

The Premium Index measures the directional bias between perp and spot markets, derived as:

premium = impact_price_difference / oracle_price

where

impact_price_difference = max(impact_bid_px - oracle_px, 0) 
                        - max(oracle_px - impact_ask_px, 0)

• impact_bid_px and impact_ask_px are the average execution prices for a fixed notional order size on each side of the order book

• The impact notional size is defined per market (e.g., $100k for BTC/ETH perps, smaller for low-liquidity assets)

This ensures the funding rate reflects true market depth, not transient micro-price fluctuations.

---

Funding Cap

To prevent extreme swings in funding rates during volatile conditions, Margin Trade enforces:

• Funding rate cap: ±4% per hour

• Funding interval: fixed at 1 hour for all assets

This cap is conservative compared to most centralized exchanges, helping stabilize funding under high volatility or low-liquidity conditions.

---

Example Calculation

Suppose you hold a 10 BTC long position on the BTC-USDC perp.

Parameter	Value
Interest Rate	0.01% (8h)
Perp Impact Bid Price	$10,100
Oracle (Spot) Price	$10,000
Funding Interval	1 hour
Position Size	10 BTC

Step 1: Compute Premium

Premium = (Impact Bid - Oracle) / Oracle
Premium = (10,100 - 10,000) / 10,000 = 0.01 (1%)

Step 2: Clamp the Interest Differential

Clamped = clamp(InterestRate - Premium, -0.05%, 0.05%)
Clamped = clamp(0.01% - 1%, -0.05%, 0.05%) = -0.05%

Step 3: Compute Funding Rate

Funding Rate = Premium + Clamped
Funding Rate = 1% + (-0.05%) = 0.95%

Step 4: Compute Funding Payment

Funding Payment = position_size × oracle_price × funding_rate
Funding Payment = 10 × $10,000 × 0.0095 = $950

You would pay $950 in funding to shorts at the next hourly interval.

---

Equities and Off-Hour Funding

For equity perpetuals, Margin Trade adjusts funding based on the oracle price provided by Polygon.io. During off-hours (when traditional markets are closed), funding rates are smoothed using decayed EMA-based premiums to avoid artificial volatility from illiquid pre/post-market activity.

Funding remains active 24/7 and ensures convergence between equity perp prices and their last known oracle value.