# Funding Rate Methodology

Perpetual Futures on One Trading include a funding rate, a periodic payment exchanged every 4 hours between long and short position holders. This mechanism helps align the perpetual contract's price with the underlying asset's spot price. One Trading does not charge fees on the funding rate. 

The funding rate consists of two components:

**Interest Rate Differential**: This component reflects the difference in interest rates between the base currency (the traded asset, e.g., BTC) and the quote currency (e.g., EUR). For example, in a BTC/EUR perpetual futures contract, if the EUR interest rate is higher than BTC's (which typically has no yield), the long position holder pays this differential to the short position holder. This is because the long position is effectively borrowing EUR (high interest rate) to gain BTC exposure (no/low interest rate). The interest rate component helps keep futures prices aligned with spot prices by accounting for the cost of holding positions.

**Premium Index**: This represents the difference between futures and spot prices. When futures trade at a premium, the long position pays funding to the short position, encouraging more shorts and fewer longs, thus converging prices. Conversely, when futures trade at a discount, the short position pays funding to the long position. This self-correcting mechanism maintains alignment between futures and spot prices.

## Methodology
### Interest Component

Set as a yearly percentage per market and converted to the funding period using the formula:

$ r = (1 + R)^{\frac{1}{n}} - 1 $


Where: \( $r$ \) is the period rate, \( $R$ \) is the annual interest rate, and \( $n$ \) is the number of funding periods per year.

### Premium Index
Given the Mark Price and Index Price, the premium index  \( $P$ \) series is calculated every 1 minute using the following equation:


![Screenshot 2025-04-09 at 15.11.47.png](https://api.eu.apidog.com/api/v1/projects/349694/resources/338675/image-preview)

where the $\text{Index Price} $ is the weighted average spot price of the underlying asset listed on major spot exchanges. 

#### Time-Weighted Average Premium Index

The time-weighted average premium index \( $\bar{P}$ \) is calculated over the funding period using the premium index series:


![Screenshot 2025-04-09 at 15.11.54.png](https://api.eu.apidog.com/api/v1/projects/349694/resources/338674/image-preview)

where $P_t$ denotes the t-th 1-minute observation of $P$, $w_t = w_0 + \alpha t$ is the weight for each observation (with $w_0$ being the starting weight and $\alpha$ being the scalar step increase), and T is the total number of 1-minute intervals within the 4-hour period.

### Funding Rate Calculation

The preliminary funding rate is calculated as:


![Screenshot 2025-04-09 at 15.11.59.png](https://api.eu.apidog.com/api/v1/projects/349694/resources/338671/image-preview)

where $\beta$ is the clamp boundary parameter.

The clamp function ensures a value stays within a specified range by limiting it to the nearest boundary if it would go outside that range:


![Screenshot 2025-04-09 at 15.12.05.png](https://api.eu.apidog.com/api/v1/projects/349694/resources/338670/image-preview)

Clamping ensures that the dampening adjustment \(-$\bar{P}$\) stays within \(-$\beta$\%\) and \(+$\beta$\%\). This means:
- If \(-$\bar{P}$\) is less than \(-$\beta$\%\), it will be set to \(-$\beta$\%\)
- If \(-$\bar{P}$\) is between \(-$\beta$\%\) and \(+$\beta$\%\), it will remain unchanged
- If \(-$\bar{P}$\) is greater than \(+$\beta$\%\), it will be set to \(+$\beta$\%\)

Finally, a cap is applied to the funding rate to determine the final funding rate:

![Screenshot 2025-04-09 at 15.12.11.png](https://api.eu.apidog.com/api/v1/projects/349694/resources/338669/image-preview)

where $\tau$ is the maximum absolute value allowed for the funding rate, ensuring the rate stays within reasonable bounds.


## Funding Rate Settings

| **Parameter** | **Symbol** | **Description** | **BTC_EUR_P** | **ETH_EUR_P** | **XRP_EUR_P** | **Unit** |
|----------------|-------------|------------------|---------------|---------------|---------------|-----------|
| **Instrument** | $i$ | Instrument code | BTC_EUR_P | ETH_EUR_P | XRP_EUR_P | - |
| **Annual Interest Rate** | $R$ | Yearly interest rate | 2.40% | 2.40% | 2.40% | % p.a. |
| **Period Interest Rate** | $r$ | Calculated period rate¹ | 0.001083% | 0.001083% | 0.001083% | % per period |
| **Funding Period** | $\text{pd}$ | Duration of funding cycle | 240 | 240 | 240 | minutes |
| **Funding Periods/Year** | $n$ | Number of periods per year² | 2,190 (2025) | 2,190 (2025) | 2,190 (2025) | periods |
| **Starting Weight** | $w_0$ | Time-weighted starting weight | 0 | 0 | 0 | - |
| **Alpha Parameter** | $\alpha$ | Time-weighted decay factor | 1 | 1 | 1 | - |
| **Clamp Threshold** | $\beta$ | Dampening clamp boundary | ±0.05% | ±0.05% | ±0.05% | % |
| **Funding Rate Cap** | $\tau$ | Maximum absolute funding rate | ±0.10% | ±0.10% | ±0.10% | % |

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**Note:**  
The **Clamp Threshold (β)** widens to **±1.5%** from **Friday 20:00 UTC** through **Monday 00:00 UTC**.