In general, future price may deviate from the spot price. The spread is what we often call the basis. When the future contract is close to the delivery date, the basis will be close to zero. Since the perpetual contract has no expiration date, the funding cost mechanism is used to anchor the market price of the perpetual contract to the spot price. In this article, we introduce the funding costs of USDT Contract(CFD).
Collection of Funding Cost
Funding costs are charged every 8 hours, and the collection time are at 08:00, 16:00 and 24:00 (HKT) every day. Only when holding positions at these moments, holders would need to pay or collect funds. If the position is closed before the cost collecting time, no funding cost would be required. There are exchanges of funding fees between long side and short side, and Deepcoin platform will not collect any funding fee. When the funding ratio is positive, long side pays the funding cost and the short side collects the funding cost. Conversely, when the funding ratio is negative, the short side pays the funding cost and the long side collects funding cost.
Under Isolated Margin Mode: If funding cost is paid, the position margin will be reduced. If funding cost is received, the position margin will increase.
Under Cross Margin Mode(next app version): Account balance will be used preferentially to pay/receive funding costs. If the balance is insufficient, the position margin will be used.
Calculation of Funding Rate
The funding cost users paid or received are calculated as follows:
Funding Cost=Initial Margin*Leverage*Funding Rate
The method of calculating the funding rate is determined by the strength of short and long positions in the exchange.
①When Long position value > Short position value:
Funding Rate(F)=(1-Short Position Value/Long Position Value)*Funding Rate Cap
In this situation, long side pays the short side financing cost.
②When Short position value > Long position value:
Funding rate(F)=(Long Position Value/Short Position Value-1)*Funding Rate Cap
In this situation, short side pays the long side financing cost.
Increases or decreases in initial margin do not affect leverage.
Through the above funding cost mechanism, the ratio of long and short position in the USDT Contract(CFD) market will approaches to 1:1.