In the world of cryptocurrency futures, understanding commissions and funding is crucial for traders.
Commissions are fees charged by the exchange for opening and closing trades. They are typically expressed as a percentage of the total volume of the position, taking into account leverage. The commission rate differs for makers and takers, depending on the type of order used.
Trades executed via limit orders are considered maker transactions, as they go into the order book, thus creating liquidity for the exchange, and therefore, attract a lower commission.
Trades executed via market orders are always considered taker transactions, as market orders do not go into the order book but instead fill existing orders, using the exchange’s liquidity, hence the taker commission is higher.
Funding, or the funding rate, involves periodic payments or receipts to traders. Its purpose is to offset the imbalance between spot market prices and futures prices.
The funding rate depends on the ratio of open positions in futures contracts (long/short) and the deviation of prices between markets. It can be either positive or negative.
Funding is paid between holders of long/short positions depending on the rate. With positive funding, holders of long positions pay holders of short positions, and with negative funding, the situation is reversed.
Funding is charged/credited every 8 hours, with the exchange terminal displaying the % rate and the countdown to the next charge/credit.
The funding rate can also serve as a market sentiment indicator. High positive rates indicate bullish sentiments, while high negative rates may signify a price decline.
Commissions always have a fixed % of the total transaction volume, while funding can vary significantly across assets. For long-term position holders, it can lead to additional costs.