Perpetual contracts have become a cornerstone of modern crypto derivatives trading, offering traders the ability to take leveraged long or short positions without an expiration date. One of the key innovations that make this possible is the funding rate mechanism—a system designed to keep the price of perpetual contracts closely aligned with the underlying index price.
On platforms like OKX, this mechanism ensures market stability and fair pricing by transferring funds between long and short traders at regular intervals. Understanding how it works is essential for any trader looking to navigate perpetual futures with confidence.
What Is the Funding Rate?
The funding rate is a periodic payment exchanged between traders holding long or short positions in perpetual contracts. Its primary purpose is to prevent the contract price from deviating significantly from the spot market (index) price.
Here’s how it works:
- When the funding rate is positive, traders with long positions pay a fee to those with short positions.
- When the funding rate is negative, shorts pay longs.
👉 Discover how top traders use funding rates to time their entries and exits.
Importantly, OKX does not profit from this process. The platform acts only as a facilitator, ensuring seamless transfers between counterparties without charging additional fees.
Funding Rate Schedule and Timing
Funding payments occur at fixed intervals—typically every 8 hours at 00:00, 08:00, and 16:00 UTC, though some contracts may settle more frequently (e.g., every 1, 2, or 4 hours).
You will be charged or receive funding only if you hold an open position at the moment of settlement. If you close your position before the funding timestamp, no fees apply.
⚠️ Note: Even if you open a position seconds after the funding time (e.g., at 00:00:20 UTC), you might still be subject to fees if the system hasn't completed its calculation cycle, which can take up to one minute.
Additionally:
- Contracts delisted before a funding event are exempt from that cycle’s funding.
- The actual calculation window covers the full period leading up to settlement (e.g., 480 minutes for an 8-hour interval).
- Settlement frequency can be adjusted dynamically based on market conditions.
How Is the Funding Rate Calculated?
There are two main versions of the funding rate formula currently in use: the original method and the updated method, both designed to enhance accuracy and responsiveness.
Original Funding Rate Formula
The original formula uses a clamped moving average approach:
Funding Rate = Clamp[MA(Price Premium Index – Interest Rate), Max Rate, Min Rate]Where:
- Interest Rate = 0%
- Price Premium Index = [(Best Bid + Best Ask)/2 – Index Price] / Index Price
- MA (Moving Average) = Average of the premium index over the last 8 hours (or equivalent number of minutes)
- The final rate used for settlement is the one calculated just before the funding time (e.g., at 15:59 for a 16:00 settlement)
This method ensures smoothness but may lag during volatile periods.
Updated Funding Rate Formula
To improve responsiveness and fairness, OKX has introduced an enhanced model:
Funding Rate = Clamp[Mean Premium Index + Clamp(Interest Rate – Mean Premium Index, 0.05%, -0.05%), Max Rate, Min Rate]Key updates include:
Interest Rate = 0.03% / (24 / Settlement Interval)
- Example: For an 8-hour settlement, interest per cycle = 0.01%
Mean Premium Index uses a weighted moving average, giving higher weight to recent data points:
Weighted Average = (1×P₁ + 2×P₂ + ... + n×Pₙ) / (1+2+...+n)- Impact Bid/Ask Prices replace simple best bid/ask values for more realistic pricing under large orders.
👉 Learn how weighted averages reduce manipulation risks in funding calculations.
Understanding Impact Bid and Ask Prices
To calculate a more realistic market impact, OKX uses impact bid and ask prices, reflecting the average execution price required to fill a large order of predefined value.
What Is Impact Value?
- Impact Value = 200 × Maximum Allowed Leverage for the Perpetual Contract
- This determines the size of the hypothetical trade used to compute impact prices.
Example: BTCUSDT Perpetual Contract
Assume:
- Impact Value = 20,000 USDT
- Order Book Data:
| Order Book Level | Bid Price | Base Amount (BTC) | Cumulative Value |
|---|---|---|---|
| 1 | 90,000 | 0.02 | 1,800 USDT |
| 2 | 89,900 | 0.06 | 7,194 USDT |
| 3 | 89,700 | Partial fill | Reaches 20k USDT |
At level 3:
- Remaining needed = 20,000 – 7,194 = 12,806 USDT
- BTC amount taken = 12,806 / 89,700 ≈ 0.14276 BTC
- Total BTC used = 0.02 + 0.06 + 0.14276 = 0.22276 BTC
- Impact Bid Price = 20,000 / 0.22276 ≈ 89,780.8 USDT
Similarly, the impact ask price is calculated using asks—resulting in a slightly higher value due to market depth differences.
Then:
Premium Index = [Max(0, Impact Bid – Index) – Max(0, Index – Impact Ask)] / IndexThis refined method better reflects real-world slippage and discourages artificial price manipulation.
Calculating Funding Fees: Practical Examples
Your actual funding fee depends on your position size and the current funding rate.
For USDT/USDC-Margined Contracts
Position Value = Contracts × Contract Size × Multiplier × Mark Price
Funding Fee = Position Value × Funding RateExample:
- Long position: 10 BTCUSDT contracts
- Contract size: 0.01 BTC
- Mark Price: $60,000
- Funding Rate: +0.1%
→ Position Value = 10 × 0.01 × $60,000 = $6,000
→ Funding Fee Paid = $6,000 × 0.1% = **$6 (paid by longs)**
For Coin-Margined Contracts
Position Value = Contracts × Contract Size × Multiplier / Mark Price
Funding Fee = Position Value × Funding RateExample:
- Short position: 100 ETHUSD contracts
- Contract size: $10
- Mark Price: $4,000
- Funding Rate: +0.1%
→ Position Value = (100 × $10) / $4,000 = 0.25 ETH
→ Funding Fee Received = 0.25 × 0.1% = +0.00025 ETH
How Funding Is Collected and Distributed
OKX handles fund transfers automatically based on your margin mode:
Isolated Margin Mode
- Funding is deducted from or added to the isolated margin balance of your position.
- Does not affect your transferable cross-margin balance.
- If insufficient margin exists, partial or full liquidation may follow.
Cross Margin Mode (Single/Multi-Currency or Portfolio Margin)
- Deductions/additions come from/to your overall cross-margin equity.
- Orders remain active during funding events.
- Insufficient equity triggers liquidation if needed.
No orders are canceled during funding settlement—only balances are adjusted.
Frequently Asked Questions (FAQ)
Q: Do I get charged funding fees if I close my position right after opening it?
A: Only if you hold the position at the exact moment of funding settlement (e.g., 16:00 UTC). Closing before that time avoids fees.
Q: Why did I pay funding even though my position was profitable?
A: Funding rates are independent of your P&L. They reflect market sentiment—positive rates mean longs dominate and must pay shorts to balance demand.
Q: Can funding rates predict price movements?
A: Extremely high or low funding rates can signal over-leveraged markets, often preceding reversals—but they’re not direct price predictors.
Q: How often are funding rates updated?
A: Rates are recalculated every minute; the one used for settlement is the latest before the funding timestamp.
Q: Who receives my funding payment?
A: Other traders on the opposite side of your position—not OKX. The platform only facilitates the transfer.
Q: Can I earn passive income from funding?
A: Yes! Holding short positions during periods of strong bullish sentiment (positive funding) allows you to collect regular payments from longs.
👉 Start applying your knowledge—trade perpetuals with real-time funding data.
By understanding the mechanics behind funding rates—including premium indices, impact prices, and margin implications—traders gain a strategic edge in managing risk and optimizing returns in perpetual futures markets. Whether you're hedging exposure or speculating on price swings, mastering this mechanism is crucial for long-term success.