Perpetual Contracts Guide

Perpetual Contracts: Motivation & Use Cases

Perpetual contracts are a type of derivatives that are similar to a futures contract, but with some key differentiating properties:

• Unlike futures, perpetual contracts do not have an expiry date

• The price of a futures contract and its underlying can be quite different, with these two prices being guaranteed to converge at the contract expiry. Perpetual contracts by design trade close to the price of the underlying (spot). The closeness of perpetual price and spot price is achieved through funding which is explained below.

• The above property makes trading perpetual contracts akin to trading spot markets on leverage, i.e. margin trading.

Benefits of a perpetual contracts vs. futures

• Since a futures contract has an expiry date, a trader looking to maintain his position will need to periodically roll to a next contract as the previous one expires. Perpetual contracts obviate the need to roll positions.

• The difference between price of a futures and its underlying (i.e. the basis) can vary quite a bit. This exposes futures traders to basis risk. Since perpetual contract always trades close to spot market, the basis risk is minimal and bounded.

Funding Rate Explanation

Funding is the primary mechanism which tethers price of a perpetual contract to spot. Funding is a series of continuous payments that are exchanged between longs and shorts in a perpetual contract. Let’s understand how funding helps keep price of the perpetual contract close to the spot price.

Perpetual contract price > Spot price

When a perpetual contract trades at a premium to spot, funding tends to be positive, i.e. longs pay funding to shorts. This creates disincentive to stay long or enter into a new long position. Conversely, it creates incentive to stay short or enter into a new short position. These dynamics will serve to push the price of the perpetual contract down towards the spot price.

Perpetual contract price < Spot price

When a perpetual contract trades at a discount to spot, funding tends to be negative, i.e. shorts pay funding to longs. This creates disincentive to stay short or enter into a new short position. Conversely, it creates incentive to stay long or enter into a new long position. These dynamics will serve to push the price of the perpetual contract up towards the spot price.

Funding Rate Calculation

Funding Rate is considered to be an 8-hourly rate and is the sum of two terms: (a) Premium and (b) Interest Rate.

Premium

$$P r e m i u m = ( M a r k P r i c e − U n d e r l y i n g \_ I n d e x \_ P r i c e ) / U n d e r l y i n g \_ I n d e x \_ P r i c e$$

The details on how the Mark Price is calculated are available here.

Premium is measured every minute and its 8-hour TWAP (Avg. Premium) is used in the computation Funding Rate.

Interest Rate

The Interest Rate term in Funding calculation is a function of the differential of borrow rates of quote currency and base currency of the perpetual contract. The Interest Rate thus is a proxy for cost of holding a position in a perpetual contract.

Since borrow rates for different currencies can vary widely, the Interest Rate used in Funding calculations can vary from contract to contract. However, as of now, Interest Rate of 0.01%/ 8 hours is being used for contracts.

Funding Rate

Funding Rate is computed using the following formula:

$$Funding\ Rate = Avg.\ Premium + clamp (Interest\ Rate - Avg.\ Premium, 0.05\%, -0.05\%)$$

The clamp function limits the value of (Interest Rate - Avg. Premium) to a band of (-0.05%, 0.05%).

This means that if (Interest Rate - Avg. Premium) is within +/-0.05%, Funding Rate is equal to:

$$Funding\ Rate = Avg.\ Premium + (Interest\ Rate - Avg.\ Premium) = Interest\ Rate$$

When (Interest Rate - Avg. Premium) < -0.05%, then Funding Rate is equal to:

$$Funding\ Rate = Avg.\ Premium - 0.05\%$$

And, when (Interest Rate - Avg. Premium) > 0.05%, then Funding Rate is equal to:

$$Funding\ Rate = Avg.\ Premium + 0.05\%$$

Funding Rate is computed 3 times in a 24 hour period at: 5:30 am IST, 1:30 pm IST and 9:30 pm IST. At these times, the TWAP of Premium in the preceding 8 hours is used to compute the Funding Rate. This Funding Rate thus obtained remains applicable for the next 8 hours.

At any instant, there are two Funding Rates available: (a) the Funding Rate that is currently applicable and (b) the estimate of the Funding Rate that will be applicable in the next 8 hour interval. Both these rates are available on the price ticker on the top of the trading terminal.

Timing considerations in funding payments

Funding is exchanged between longs and shorts once every 8 hours at 5:30 am IST, 1:30 pm IST and 9:30 pm IST. At these times, the funding to be exchanged is computed using the funding rate that was applicable for the past 8 hours. For example, the funding rate which is computed at 1:30 pm is used for computing funding payments at the exchange which will happen at 9:30 pm.

The implementation of the above logic results in:

• The matching engine takes a snapshot of all open positions at each funding exchange time.

• If your position is in the snapshot, you will either pay or receive funding depending on the sign of the rate and whether you are long or short.

• If your position is not in the snapshot, you will not pay or receive funding.

• The duration of time you held the position between two funding exchanges is not relevant from the perspective of funding payments.

Funding Payment

Funding paid or received is computed as:

$$Funding\ Payment = Current\_Position\_Value * Funding\ Rate$$

where Current Position Value is value of a the position at the current Underlying Index Price.

Funding Limits

A perpetual contract can be thought as an 8-hour futures contract that is being rolled into the next 8-hour futures at every funding exchange. Thus, the fair basis of a perpetual contract should be similar to a futures contract which will expire in 8 hours. With this in mind, we enforce pretty tight caps on the fair basis for perpetual contracts. As of now, most perpetual contracts have funding capped at 0.5% or 0.15% (for alt-btc pairs). But these caps are subject to change and are available in the contract specifications. Any changes to funding caps will be announced promptly.

Funding Example

Lets say you have a long position of 1000 lots in the BTCUSD Perpetual contract on Delta Exchange. Recall that the lot size of the BTCUSD Perpetual is 0.001 BTC. So your position size is 1 BTC.

Between 1:30 pm and 9:30 pm the TWAP of Premium was 0.04%. Assuming Interest Rate is 0.01%, for the next 8 hours, i.e. between 9:30 pm and 5:30 am, the applicable Funding Rate will be:

$$Funding\ Rate = 0.04\% + clamp(0.01\% - 0.04\%, 0.05\%, -0.05\%) = 0.01\%$$

Let's assume you continue holding your long position at the next funding exchange time of 5:30am. Since you are long and Funding Rate is positive, you’d be paying funding. The funding to be paid, assuming that the BTC Index, i.e. the spot price is at $100,000 at 5:30am, is computed as follows:

Some Key Points

• Funding payments are completely peer-to-peer and Delta Exchange does not charge any fees on funding.

• In some perpetual contracts, the funding interval may be reduced to less than 8 hours. Any such adjustments will be announced promptly, along with details of the applicable funding exchange times.

• Our trading systems are asynchronous. For trades opened or closed very close to the funding exchange times, the entries for the trade and the funding may not always appear in perfect sequence in your logs.

• We previously had a minute-by-minute funding exchange between longs and shorts. The current method was made effective from 5:30pm IST on the 8-Sep-2025 to make funding more predictable, easier to track and in line with global best practices.