1. Funding Rate: The funding rate refers to the periodic fee paid to long or short traders based on the price difference between the USDT-M market and the spot price. When the market is bullish, the funding rate is positive and tends to rise over time. In this case, long traders in the USDT-M market will pay the funding fee to the opposing traders. Conversely, when the market is bearish, the funding rate is negative, and short traders will pay the funding fee to long traders.
※ Unlike traditional contracts, USDT-M do not have an expiration date. Therefore, traders can hold positions indefinitely unless they are liquidated.
※ USDT-M are very similar to spot trading. To ensure that the price of USDT-M aligns with the index, cryptocurrency exchanges have created a mechanism known as the funding rate. The key function of the funding rate is to minimize the price difference between the USDT-M market and the corresponding spot market (price convergence).
※ The funding rate is determined by two factors: interest rate and premium. The premium explains why the price of the USDT-M will follow the same trend as the underlying asset price.
2. Funding Fee: The funding fee is the mechanism that anchors the latest market price to the global spot price, with long and short positions exchanging the funding fee between each other.