💡Basics

Funding Rates

The funding rate is used to force convergence of prices between the Perpetual Contract and the underlying asset. It is a core element for any Perpetual Swap Contract given that perpetuals have no fixed expiry date and can be held indefinitely.

The funding rate payment is made periodically by short to long traders or by long to short traders and is calculated based on the difference between the perpetual contract prices and spot price of the underlying. For example, in an uptrend, the funding rate is positive and tends to rise over time, meanwhile traders who are long on a perpetual contract pay a funding fee to traders on the opposing short side.

Conversely, this applies when the funding rate is negative during a downtrend and traders who are short the perpetual contract pay a funding fee to traders who are taking a long position.

Delta Neutral (DN)

Delta Neutral is a strategy that utilizes multiple positions with balancing positive and negative deltas so that the overall delta in the assets are net zero.

The purpose for this is that the portfolio evens out the response to market movement within a certain range to deliver the net change of the position to zero.

Delta Neutral strategies are also employed for hedging purposes to minimize a traders downside risk.