Bybit is a cryptocurrency exchange with over 16 million daily site visits and over US$444 million daily trading volume. It offers features such as zero-fee spot trading, derivatives trading, and launchpad projects. An attractive feature for many crypto traders is the ability to profit by taking advantage of funding rates and fees. In this article, we look at how Bybit funding rates and fees work, and how to profit from it.
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What is Bybit?
Bybit is a cryptocurrency exchange founded by Ben Zhou and launched in 2018. The exchange currently has over 10 million users worldwide and supports over 100 cryptocurrencies. Bybit offers the following products: spot trading, derivatives trading (including USDT/USDC perpetual contracts, USDC options, leveraged trading, inverse perps and futures), an NFT marketplace, and Bybit earn.
What is Crypto Funding Rates and Fees?
Crypto funding rates are periodic payments of funding fees to traders based on the difference between the perpetual contract market and spot prices. The purpose of funding rates is to align the perpetual contract price to the spot price. If the perpetual contract trading price is higher than the spot price, long position holders would pay short position holders. This is to encourage traders to open more short positions to bring the trading prices closer to the spot price. On the other hand, if the perpetual contract trading price is lower than the spot price, the opposite would occur. Those who hold short positions will pay funding fees to those holding long positions.
What are Bybit Funding Fees and Rates?
When does Bybit calculate its Funding Rates?
Bybit generally calculates its funding rates every 8 hours i.e. at 00:00 UTC, 08:00 UTC and 16:00 UTC. These are known as “funding intervals”. However, Bybit may adjust the interval depending on the live market situation. Particularly if there is a significant gap between the Last Traded Price and the Mark Price.
What are the Last Traded Price and the Mark Price on Bybit?
Bybit uses a Dual-Price mechanism consisting of the Last Traded Price and the Mark Price. This stops traders from falling victim to market manipulations which result in differences between the market price on a futures exchange and the spot price. For traders, this means a mass liquidation of their positions.
To prevent this, Bybit uses the Mark Price as the trigger for liquidation and to measure unrealised profits and losses. The Mark Price is a reference to a global Spot price index plus a decaying funding basis rate. Traders will be liquidated only when the Mark Price reaches the trader’s liquidation price.
The Mark Price can be found at the bottom right-hand corner of the page.
Bybit Mark Price as shown in yellow (Source: Bybit)
On the other hand, the Last Traded Price reflects Bybit’s current price and is always anchored to the spot price.
When do Bybit traders pay/receive the funding fee?
Traders will only pay or receive funding fees if they hold an open position at the end of every funding interval. As mentioned, this is generally at 00:00 UTC, 08:00 UTC and 16:00 UTC. However, Bybit warns users that opening/closing a position within 5 seconds before/after the funding interval does not guarantee they would be included or excluded from receiving or having to pay the funding fee.
Bybit funding rate and countdown (Source: Bybit)
As seen above, users can find out what the current funding rate is and when the next funding interval ends. So in the above screenshot, the funding rate is negative, so short position holders will pay fees to long position holders. This will be paid at the end of the countdown.
The funding rate mechanism occurs peer-to-peer, so Bybit does not take any fees. If the user is required to pay a funding fee, it is deducted from their available balance. However, if the user has insufficient balance, the funding fee will be deducted from the position margin. The result, however, is that the liquidation price of the position will be more prone to the mark price. Thus, increasing the risk of liquidation.
How to calculate Bybit Funding Fees
Bybit Funding Fees on Perpetual Contracts
Here’s how to calculate the funding rate on Bybit perpetual contracts using the below screenshot as an example. As the funding rate is positive, long position holders need to pay a 0.0001% funding rate to short position holders.
Bybit funding rates on perpetual contracts (Source: Bybit)
The Funding Fee is calculated as follows:
Funding Fee= Position Value x Funding Rate
The Funding Rate is already stated on the screenshot, i.e. 0.0001%. The Position Value is calculated using the following formula:
Position Value=Quantity of Contract x Mark Price
To calculate the Position Value:
Position Value= 10 x 16,000 = 160,000 USDT
Now we can calculate the Funding Fee:
Funding Fee= 160,000 x 0.0001% = 0.16 USDT
Since the Funding Rate is positive (i.e. 0.0001%), long position holders have to pay short position holders. So, Trader Bob must pay a funding fee of 0.16 USDT to a short position trader. Meanwhile, a short position holder with the same quantity of contracts (i.e. 10 BTC) will receive 0.16 USDT.
Bybit Funding Fees on Inverse Contracts
Here’s how to calculate the funding fees on Bybit inverse contracts using the below screenshot as an example. Since the funding rate is positive, long position holders need to pay a 0.01% funding rate to short position holders.
Bybit funding fees on inverse contracts (Source: Bybit)
The funding fee is calculated using the following formulas:
Funding Fee= Position Value x Funding Rate
The Funding Rate is already stated on the screenshot, i.e. 0.01%. The Position Value is calculated using the following formula:
Position Value=Quantity of Contract / Mark Price
Trader Tom holds a long position of 10,000 BTCUSD contracts and the Mark Price is 16,000 USD at the end of the funding interval with a Funding Rate of 0.01%.
To calculate the Position Value:
Position Value= 10,000 / 16,000 = 0.625 BTC
Now we can move on to calculate the Funding Fee:
Funding Fee= 0.625 x 0.01% = 0.0000625 BTC
Since the Funding Rate is positive (i.e. 0.01%), long position holders have to pay short position holders. So, Trader Tom must pay a funding fee of 0.0000625 BTC to a short position trader. Meanwhile, a short trader holding the same quantity of contracts (i.e. 10,000 BTCUSD contracts) will receive 0.0000625 BTC.
How to profit with Bybit Funding Rates and Fees
Crypto funding rates tend to be correlated to the price trend of the underlying asset. That is, the spot market dictates the funding rate. So when the underlying cryptocurrency prices are on an upward trend, the funding rates will be higher too.
When crypto prices are going up, there would usually be higher trading price premiums and higher funding rates. In those situations, traders holding short positions on perpetual contracts whilst going long on the spot market would stand to earn funding fees.
On the other hand, when crypto prices are dipping, the trading price of perpetual contracts will be discounted compared to the spot price. This will result in a dip in funding rates. Traders going long in the perpetual contracts market with short positions in the spot market during this period would receive funding fees.
On Bybit, you can check the historical and predicted funding rates here.
Bybit historical funding rates (Source: Bybit)
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