Funding Fee

What is Funding Fee?

In the context of crypto futures trading, a funding fee is a fee that is paid or received by traders depending on the difference between the futures price and the spot price of the underlying asset. This fee is used to ensure that the futures market remains in equilibrium and that the price of the futures contract stays close to the spot price.

On Binance, for example, the funding rate is calculated every 8 hours and is based on the difference between the futures price and the spot price of the underlying asset (Bitcoin, Ethereum, etc.). If the futures price is higher than the spot price, then long traders (buyers) will pay a funding fee to short traders (sellers). If the futures price is lower than the spot price, then short traders will pay a funding fee to long traders. The funding fee is paid in the underlying asset. The funding rate is not fixed, it fluctuates based on the market conditions and the number of long and short positions.