Funding rate consists of two parts: Interest Rate and Premium Index.
Interest Rate (I)
Every contract traded on Bybit comprises of a Base currency, such as BTC, and a Quote currency, such as USD. The Interest Rate is a function of the interest rates between these two currencies. For BTCUSD, it is the difference between the borrowing costs of BTC and USD. On Bybit’s website, (.BTCBON) BTC lending rate can be found in the Index section under the 'Contracts' tab.
$$\text{Interest Rate(I)} = {\text{Price Interest Rate Index - Base Rate Index}\over\text{Fund Rate Interval}}$$
- Interest Quote Index = The Interest Rate for borrowing the Quote currency
- Interest Base Index = The Interest Rate for borrowing the Base currency
- Funding Interval = 3 (Since funding occurs every 8 hours)
Interest Quote Index = 0.06%, Interest Base Index = 0.03%
Formula: The Interest Rate = (0.06%-0.03%)/3 = 0.01%.
Premium Index (P)
Perpetual contracts may trade at a premium or discount from the Mark Price. In this situation, a Premium Index will be used to raise or lower the next Funding Rate to be level consistent with where the contract is trading. On Bybit’s website, history records of Premium Indexes (.BTCUSDPI; Premium Index) can be found at the Index section under the 'Contracts' tab.
$$\text{Premium Index (P)} = {\text{Max(0, Impact Bid Price - Mark Price) - Max(0, Mark Price - Impact Ask Price)}\over\text{Index Price}}+\text{Funding Rate of Current Interval}$$
$$\text{Funding Rate (F)}= \text{Premium index (P) + clamp (Interest rate (I) - Premium index (P), 0.05%, -0.05%)}$$
Impact Bid Price = The average fill price to execute the Impact Margin Notional on the Bid side
Impact Ask Price = The average fill price to execute the Impact Margin Notional on the Ask side
Impact Margin Notional is the notion available to trade with 0.1 BTC/2 ETH/200 EOS/ 2000 XRP/ 50,000 USDT worth of initial margin and is used to determine how deep in the order book to measure either the Impact Bid or Ask Price.
Funding Rate Calculation
Bybit calculates the Premium Index (P) and Interest Rate (I) every minute and then performs an 8-Hour Time-Weighted-Average-Price (TWAP) over the series of minute rates.
The Funding Rate is next calculated with the 8-Hour Interest Rate Component and the 8-Hour Premium / Discount Component. A +/-0.05% dampener is added.
Funding Rate (F) = Premium Index (P) + clamp(Interest Rate (I) - Premium Index (P), 0.05%, -0.05%)
Hence, if (I - P) is within +/-0.05% then F = P + (I - P) = I. In other words, the Funding Rate will equal the Interest Rate.
This calculated Funding Rate is then applied to a trader’s Position Value to determine the Funding Fee to be paid or received at the Funding Timestamp.
Funding rate calculated between 00:00-08:00 will be exchanged at 16:00; Funding rate calculated between 08:00-16:00 will be exchanged at 00:00; Funding rate calculated between 16:00-00:00 will be exchanged at 08:00.
Funding Rate Limit
(Initial Margin of the risk level 1st tier - Maintenance Margin of the risk level 1st tier) * 75%
Funding rate and Predicted rate
At the "Contract Details" section, traders may check on the funding rate which has been fixed for next funding timestamp (within 8 hours). When you move your cursor to the Funding rate, the Predicted rate will be shown and it indicates the predicted funding rate for the subsequent funding timestamp (within 16 hours). It is not fixed and is updated every minute according to Interest Rate and Premium Index that will affect the calculation of funding rate until the end of the current funding interval.