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Funding | MyCoinStory Trading School(MyCoinStory.com)

5 months ago

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Welcome to MCS, the world-class derivatives trading platform where traders ALWAYS come first.    

     

   

The topic of this post is the "funding" in MCS.

The fact that MCS's perpetual contract has no settlement makes the difference from other futures contract products in the market.

 

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Convergence Graph by Settlement

           

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Estimated graph without Settlement

       

Due to the existence of settlements in ordinary futures contract products, they are closed on the settlement date. Therefore, before the maturity date arrives, the spot price is either premium or traded at a discounted price rather than the spot price. As the maturity date approaches, the spot price converges.

   

On the contrary, MCS's perpetual contract does not have a settlement date, which forms a premium or a discount price. This widens the gap between the price of a perpetual contract and the spot price. Therefore, MCS's perpetual contract uses a funding mechanism that can be used to minimize the gap between the spot price and the settlement date.

           

       

       

The funding mechanism in MCS's perpetual contract exists to reduce the gap between the last traded price and the mark price. By setting the funding cost among traders holding positions according to the funding interest rate, the last traded price and the mark price can be synced as much as possible. The funding fee is settled three times a day, and it is safe to understand that in the perpetual contract, the settlement is every 8 hours.

   

   

Funding Rate

The funding rate of MCS is computed by calculating the premium index (P) and interest rate (I) every minute and calculating the weighted average value per minute. The formula of the funding rate is as follows.

                 

     

Funding Rate Formula

$$ \text{Funding Rate(F)} = \text{Premium Index(P)} + \text{clamp}({\text{Interest(I)} - \text{Premium Index(P)}, 0.05\%, -0.05\% )} $$

The funding rate can be either positive or negative. When the funding rate is positive, traders holding long positions will pay traders with short positions a funding fee. Conversely, if the funding rate is negative, the traders holding short positions will pay the funding fee to the traders with long positions.

Funding fees are exchanged every 8 hours, 3 times a day at <01:00, 09:00, 17:00> UTC. Traders who do not hold a position at the time of funding will not pay/receive the funding fee. The settlement will only be made between traders that hold a position at the time of funding.

 

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Is MCS taking the funding fee?

One thing that many traders misunderstand is that "the amount paid for the funding is taken by MCS". However, as mentioned in the above explanation, funding fee settlement is mutually settled among traders who hold positions, and MCS is not involved in any funding settlement.

It may seem small when the funding cost settlement takes place once, but if you hold a position for a long time or have a large number of contracts, the funding rate and the timing of the upcoming funding settlement are one of the most important information to check when trading.

If the traders continue to pay as much as the funding rate of the position value from the position of paying, the amount you paid may grow like a snowball. Therefore, traders are advised to trade with a strategy that takes into account the funding interest rate and the timing of the upcoming fund settlement.

In the upcoming post "Funding Part 2", we will explain how to calculate the funding cost a trader will get or pay.

                 

         

MCS will consider traders at the first.

Thank you.

           

START TRADING

 

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Published 5 months ago