The "Last Price" indicates the last traded price on the Futures market. To avoid the last price deviating from the spot price, Poloniex Futures uses the funding mechanism to ensure that the last price is always anchored to the global index spot price.
Funding occurs every 8 hours at 04:00 UTC, 12:00 UTC and 20:00 UTC. Traders will only pay or receive funding if they hold a position at one of these times. If the position is close prior to the funding exchange, traders will not pay or receive funding.
Depending on open positions, traders will either pay or receive funding (positive funding - longs pay shorts, negative funding- shorts pay longs).
Funding = Position Value * Funding Rate
Position Value is determined by the Mark Price at funding timestamp.
For example, Trader A holds a long position of 10 lots BTCUSDTPERP and the Mark Price is 8,000 USDT at the funding timestamp with the current Funding Rate at 0.01%.
According to the descriptions above, we could find out:
Position Value = 8,000 * 10 = 80,000 USDT
Funding = 80,000 * 0.01％= 8 USDT
As the Funding Rate is positive, longs pays the shorts. Therefore, Trader A needs to pay a funding fee of 8 USDT and Trader B who shorts the same sized positions will receive 8 USDT. If trader A closes the position before the Funding timestamp, then they do not need to pay the funding fee.
Funding Rate Calculation
The Funding Rate is composed of Interest Rate and Premium Index:
Each contract on the Futures platform consists of two instruments: Base Currency and Quote Currency. Interest Rate is the function of the interest rates between the two currencies, indicating the differences between the Quote Currency(USDT) and the Base Currency(BTC) in specified funding intervals.
The perpetual contract may trade at a significant premium or discount to the Mark Price. In these situations, the Premium Index will be used to raise or lower the next Funding Rate.
Premium Index：8-hour TWAP of the PXBTUSDT Index
Funding Basis = Funding Rate * (Time until Funding / Funding Interval)
Traders could check the Premium Index at Contract Specifications and the historical data.
The initial Funding Rate is calculated based on the 8-Hour Interest Rate and Premium Index.
The final Funding Rate is calculated based on the initial Funding Rate, previous Funding Rate (T-1), Initial Margin, and Maintenance Margin and will be applied for use at the funding timestamp.
The final Funding Rate calculated above is then applied to the trader’s position to determine the Funding amount to be paid or received at the funding timestamp.