Understanding funding

Funding is a payment made between perpetual position holders. The funding mechanism is designed to improve the correlation between each of our perpetual futures markets and their underlying markets, by providing a direct incentive to align prices on the perpetuals market with the underlying market price. Bullish Exchange runs on an hourly perpetual funding schedule.

You will either pay or receive funding, depending on the Funding Rate and on whether you hold a long or short position at the time the snapshot is taken. Bullish Exchange takes the position snapshot at the end of every hour.

• If the perpetual futures contract is trading at a premium, i.e., when the Mark Price is higher than the Index Price, long position holders pay a Funding Amount to short position holders.

• Conversely, if the perpetual futures is trading at a discount, i.e., when the Mark Price is lower than the Index Price, short positions holders pay a Funding Amount to long position holders.

The Funding Amount is determined by the funding rate multiplied by the Notional Value of your position and the side of your position (long or short). It is denominated in the Settlement Asset of the perpetual contract. A positive Funding Amount is receivable by you (i.e. increases your account value) and a negative Funding Amount is payable (i.e. decreases your account value).

Funding Amount (of a position)

Each of your perpetual positions will have its own separate Funding Amount for the hour.

The final funding rate is the average of 59 per-minute snapshots taken at minutes 1 through 59 of the preceding hour:

Final funding rate = average of f₁ … f₅₉

Each per-minute snapshot applies three steps in order:

Step 1 — Compute the raw premium

Premium = (Mark Price − Index Price) / Index Price

Step 2 — Apply the ±2 bp dead-zone

Small, transient deviations between the Mark Price and Index Price (up to ±2 basis points) are treated as noise and zeroed out. Only persistent premiums or discounts beyond this threshold contribute to funding.

Damped premium = Premium − 2 bp, if Premium > +2 bp

Damped premium = Premium + 2 bp, if Premium < −2 bp

Damped premium = 0, if −2 bp ≤ Premium ≤ +2 bp

Step 3 — Apply the ±5 bp cap and divide by 8

The damped premium is capped at ±5 basis points per snapshot, then divided by 8 to convert it to an hourly rate:

f_k = clamp(Damped premium, ±5 bp) / 8

This means the maximum possible final funding rate is 0.625 bp/hr (≈ 54.75% APR), a level that only binds under extreme and sustained market dislocations.

Funding Amounts are calculated and added to your unsettled P&L during the hourly settlement-to-market process. The unsettled P&L is then settled immediately afterwards.

If you have insufficient funds available to meet your settlement obligations and the account is enabled for borrowing, the system will auto-borrow assets when available for borrowing. If you do not have borrowing enabled then the system may sell some of your collateral (partially or fully liquidating your assets) in order to meet your obligations.

Indicative funding rates are shown at the top of the Trade screen when viewing a perpetuals market. Note that the indicative value becomes increasingly constrained over each hour, and is equal to the final funding rate one minute before the Funding Amounts are charged. The indicative funding rate is also available over API.

The purpose of the funding rate is to incentivise market prices to align in the medium term. In some situations our internal systems may not have a full hour’s worth of high quality data. As a result, Bullish Exchange may choose to set the funding rate to zero, rather than use partial or potentially incorrect data for that hour. In such situations you will see and receive zero funding rates via API and in the web app.