There is no expiry date for a continuing contract of encryption, and the exchange usually uses financial rates to keep the contract price as close as possible to the spot. For traders, this data is not just a cost item but is often used to observe whether market positions are being concentrated in a certain direction.
How the fund rate works
The financial rate is in essence a regular payment between multiple and empty, rather than an additional fixed fee charged by the exchange. In general, where the price of a contract is higher than that of a spot, the financial rate is converted to a positive value, to be paid from multiple sources; if the contract price is lower than that of a spot, the rate may be turned to a negative value, to be paid from an empty source.
The purpose of this design is to regulate the multi-empty power through the payment of costs so that the price of a sustainable contract does not deviate from the spot market for a long time. Coinbase also defines it as a transfer between multiple holding warehouses based on whether the contract is a premium or a discount.
What's the cost?
The simplest calculation is that the cost of funds is equal to the holding value multiplied by the cost of funds. If a trader holds a permanent BTC position valued at $100,000 at the applicable rate of 0.01 per cent, the corresponding cost is approximately $10.
- Warehousing value: $100,000
- Funding rate: 0.01 per cent
- Corresponding costs: approximately $10
When the rate is positive, the money is usually paid in multiple amounts, and when the rate is negative, it is paid in blank. The frequency of settlement varies from exchange to exchange. In the case of Bybit, part of the contract is settled once every eight hours, and usually only when there is a warehouse space at the time of settlement will the cost actually be paid or received.
The rates are more like emotional indicators.
The article states that the financial rates cannot be used alone to judge subsequent increases or declines and are better read in conjunction with price, unsettled contracts and liquidation data. If the increase in bitcoin is accompanied by a rapid increase in financial rates and silo contracts, it tends to indicate an increased reliance on leverage and increased market sensitivity to multiple liquidations.
Conversely, if financial rates continue to be significantly negative, this usually means that there is more concentration of empty space. In such cases, once prices have rebounded, the market may be more likely to be empty and even to trigger crowding.
The real concern, therefore, is not whether the rates are positive or negative per se, but whether they clearly deviate from recent normals. Positive rates can persist in cattle markets and negative rates can be maintained for a longer period of time during the fall. For traders, this indicator is more of a window to observe the crowding and silo tendencies of leverage than a direct forecast of the direction of prices.