One of the top cryptocurrency exchanges in the world, Binance, has announced substantial updates to its futures platform, with a focus on USD-M perpetual contracts. The goal of these adjustments is to improve user experience and market circumstances. What does this entail for the typical user, though? Let’s dissect it.
Binance will increase the frequency of funding rate settlements for selected USD-M Perpetual Contracts beginning October 12, 2023, at 8:00 a.m. (UTC). These settlements used to happen every eight hours; they will now happen every four. Numerous contracts, including but not limited to the USD-M IMX, LPT, API3, and HIFI Perpetual Contracts, are impacted by this modification.
What are funding rates?
A perpetual contract’s price is synchronised with the real market value of the underlying asset through the use of funding rates. In plainer terms, it is a method of ensuring that the price of the contract doesn’t deviate too far from the market value of the cryptocurrency it represents. Those with long holdings must compensate those with short positions if the rate is positive, and vice versa.
Capped funding rates for these contracts will likewise change as of October 9, 2023, at 8:30 a.m. (UTC). For contracts with a maximum leverage of 25x or less, the new cap will be 3%. If the maximum leverage of a contract is decreased to 25x or less, this new rate will instantly take effect without further notice.
Why does this matter?
According to market volatility, funding rates might change. In times of quiet, rates are often low. However, they may increase amid market turbulence. The new cap tries to provide traders some certainty and security.
Binance maintains that it will keep reviewing and changing financing prices as necessary. Any significant changes will be announced to users at least two weeks in advance, however in the event of a severe market downturn, notification could be given sooner.