⚖️Funding Rate
Introducing JOJO Funding Rate
Last updated
Introducing JOJO Funding Rate
Last updated
Funding rates are periodic payments made to either long or short traders, calculated based on the difference between the perpetual contract prices and spot prices. It is designed to prevent long-term discrepancies between perpetual contract markets and spot prices. It is recalculated several times a day – JOJO does this every 8 hours.
JOJO provides a clear display of funding rate and a countdown to the next funding period for the convenience of its users.
The impact of funding rates on traders can be significant as funding calculations take into account the amount of leverage used. If a trader uses high leverage and pays for funding, they may suffer losses and end up getting liquidated even in low-volatility markets. Conversely, if a trader collects funding, it can be profitable, particularly in range-bound markets. Therefore, traders can create trading strategies to benefit from funding rates and make profits even in low-volatility markets. Essentially, funding rates are intended to incentivize traders to take positions that maintain perpetual contract prices in line with spot markets.
This model of paying a penalty to the side that deviates from the target price to the side that maintains the target price is the funding fee system of perpetual. Through such reward and punishment measures, the designer of perpetual urges the party whose price deviates in the contract market to adjust, and finally makes the contract price converge with the spot price. In the event of a positive funding rate, it is typical for the perpetual contract price to exceed the mark price. Consequently, traders with long positions must pay for short positions. Conversely, a negative funding rate dictates that short positions must compensate long positions. It is important to note that funding rates are exchanged between peers, and as such, JOJO takes no fees from funding rates as they happen directly between users.
The Funding Rate is calculated as follows:
F = Clamp (average_P + Clamp(I - average_P, -0.05%, 0.05%) , max_F, min_F )
Among them, F = Funding Rate, P= Premium Index, I = Interest Rate, Max_F = Maximum value（around 1%）, Min_F = Minimum value (around -1%)
There are two components to the Funding Rate: the Interest Rate and the Premium. On JOJO, the default daily interest rate is fixed at 0.03% (0.01% per funding interval, which occurs every 8 hours).
There might be a significant price difference between the perpetual contract and the Mark Price. In such cases, a Premium Index is used to ensure that the prices in both markets converge.
The Premium Index is calculated separately for each contract using the following formula:
Premium Index (P) = [Max(0, Impact Bid Price - Index Price) - Max(0, Index Price - Impact Ask Price)] / Index Price
Impact Bid Price = The average fill price to execute the Impact Margin Notional on the Bid Price Impact Ask Price = The average fill price to execute the Impact Margin Notional on the Ask Price
Index price means the real-time spot price of the market. It is an average of the prices on the major markets. The value of JOJO's index price is equal to the index price of Binance Perpetual.
Please note that the update of the funding rate will cease if there is a lack of sufficient index price samples. If 80% of the data points are not collected, the funding fee for the eight-hour period will either fail or pass. "Pass" indicates that there will be no change in the funding fees for this round, and the calculation will be carried forward to the next eight hours.
You can view the real-time and historical Funding Rates by clicking here.
