For short selling prep future on Binance, how come I can receive "funding fee"?
When you short sell a perpetual futures contract on Binance, you may incur a funding fee due to the mechanics of how perpetual contracts work. Here are the key points:
- Funding Rate Mechanism: Perpetual futures do not have an expiration date, so to keep the contract price in line with the underlying asset, a funding rate is applied. This rate is typically exchanged between long and short positions.
- Funding Payments: If the funding rate is positive, long positions pay short positions. Conversely, if the rate is negative, short positions pay long positions. This means that as a short seller, you might receive payments if the funding rate is favorable, or you might have to pay if the rate is not.
- Market Conditions: The funding rate fluctuates based on market conditions, such as demand for long versus short positions. High demand for long positions can lead to a positive funding rate, resulting in short sellers paying the fee.
- Settlement Frequency: Funding fees are typically settled every few hours (e.g., every 8 hours on Binance), so you should be aware of the timing of these payments.
In summary, the funding fee can affect your profitability when short selling on Binance's perpetual futures, depending on the current funding rate and market dynamics.
