- The Funding Rate determines the periodic payments that are made between traders who hold positions in perpetual futures contracts. These payments that traders pay or receive are known as Funding Fees.
- If the price of a perpetual futures contract is higher than the spot price of the underlying asset at the time of a Funding Round, longs pay Funding Fees to shorts. Conversely, if the spot price is higher than the futures price, shorts pay Funding Fees to longs.
- High Funding Fees can affect a trader’s performance by reducing profits or increasing losses, which may lead to increased liquidation risk.
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