Dynamic Funding Rate Simplified Example

Let us assume that the BNB perpetual futures market currently has $100,000 in LONG positions and $20,000 in SHORT positions.

Three scenarios can happen for this market from here:

Skew stays long — No one enters (or exits) this market. Funding rates will continue drifting upwards. Longs pay shorts an increasing amount over time until it hits the maximum dynamic funding rate according to the formula. If the long skew increases with additional long positions, then the drift upwards will increase in speed.
Skew becomes neutral — Traders bring the skew to neutral (100,000 LONG and 100,000 SHORT.) Funding rates will decrease towards 0.
Skew flips to short — Traders flip the skew to SHORT (50,000 LONG and 100,000 SHORT.) Funding rates will decrease past 0 and flip to the other side. Longs pay shorts a decreasing amount each over time it flips and shorts pay longs an increasing amount until it hits the maximum dynamic funding rate according to the formula.

Last updated 4 months ago

Let us assume that the BNB perpetual futures market currently has $100,000 in LONG positions and $20,000 in SHORT positions.

Three scenarios can happen for this market from here:

Skew stays long — No one enters (or exits) this market. Funding rates will continue drifting upwards. Longs pay shorts an increasing amount over time until it hits the maximum dynamic funding rate according to the formula. If the long skew increases with additional long positions, then the drift upwards will increase in speed.
Skew becomes neutral — Traders bring the skew to neutral (100,000 LONG and 100,000 SHORT.) Funding rates will decrease towards 0.
Skew flips to short — Traders flip the skew to SHORT (50,000 LONG and 100,000 SHORT.) Funding rates will decrease past 0 and flip to the other side. Longs pay shorts a decreasing amount each over time it flips and shorts pay longs an increasing amount until it hits the maximum dynamic funding rate according to the formula.

Last updated 4 months ago