# Funding Rate Calculation ⎊ Area ⎊ Resource 3 --- ## What is the Mechanism of Funding Rate Calculation? Funding rate calculation is a core mechanism in perpetual futures contracts designed to keep the contract price anchored to the underlying spot price. This calculation determines periodic payments between long and short position holders, based on the difference between the perpetual contract's price and the spot index price. The mechanism incentivizes traders to take positions that push the futures price back toward the spot price, preventing large and persistent divergences. ## What is the Basis of Funding Rate Calculation? The calculation directly addresses the basis, which is the difference between the futures price and the spot price. When the futures price trades above the spot price, the funding rate becomes positive, requiring long position holders to pay short position holders. Conversely, a negative funding rate occurs when the futures price trades below the spot price, resulting in short position holders paying long position holders. ## What is the Interest of Funding Rate Calculation? A component of the funding rate calculation often includes an interest rate differential, reflecting the cost of borrowing or lending the underlying asset. This interest rate component, combined with the premium or discount of the futures price relative to the spot price, determines the final funding payment. The calculation ensures that holding a perpetual futures contract carries a cost similar to holding the underlying asset with leverage, thereby maintaining market equilibrium. --- ## [Perpetual Swap Yields](https://term.greeks.live/definition/perpetual-swap-yields/) ## [Negative Funding Risk](https://term.greeks.live/definition/negative-funding-risk/) ## [Positive Funding Arbitrage](https://term.greeks.live/definition/positive-funding-arbitrage/) ## [Perpetual Futures Basis](https://term.greeks.live/definition/perpetual-futures-basis/) ## [Perpetual Futures Contract](https://term.greeks.live/definition/perpetual-futures-contract/) --- ## Raw Schema Data ```json { "@context": "https://schema.org", "@type": "BreadcrumbList", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://term.greeks.live" }, { "@type": "ListItem", "position": 2, "name": "Area", "item": "https://term.greeks.live/area/" }, { "@type": "ListItem", "position": 3, "name": "Funding Rate Calculation", "item": "https://term.greeks.live/area/funding-rate-calculation/" }, { "@type": "ListItem", "position": 4, "name": "Resource 3", "item": "https://term.greeks.live/area/funding-rate-calculation/resource/3/" } ] } ``` ```json { "@context": "https://schema.org", "@type": "WebSite", "url": "https://term.greeks.live/", "potentialAction": { "@type": "SearchAction", "target": "https://term.greeks.live/?s=search_term_string", "query-input": "required name=search_term_string" } } ``` ```json { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [ { "@type": "Question", "name": "What is the Mechanism of Funding Rate Calculation?", "acceptedAnswer": { "@type": "Answer", "text": "Funding rate calculation is a core mechanism in perpetual futures contracts designed to keep the contract price anchored to the underlying spot price. 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