Predy v2 Doc
Perpetual Contracts
Traditionally futures contracts have a settlement date, meaning, when you buy a future with a given settlement date, you are agreeing to buy the underlying product on the day that the contract settles. For example, if you want to lock in the purchase of oil, you may buy a futures contract with for some months in the future because you're concerned that the price of oil will increase before then. This works in both directions, allowing sellers to lock in a price, for example a farmer wanting to lock in a price for their wheat. Depending on what the market predicts as the future price for the underlying, the futures contracts may trade at a premium or a discount compared to the underlying spot price. As the contract moves closer to the expiration date, the contract will trader closer and closer to the underlying spot price, before finally converging at settlement.
Perpetual contracts are different from traditional contracts in that they do not expire on a certain date, and are instead used to provide leverage on the underlying asset. Because there is no settlement date or delivery of the underlying, another method is required to keep the contract price aligned with the underlying index price. This is done through funding, whereby if the price of the product is higher than the index price, long position holders will pay funding to short position holders, and if the price of the product is lower than the index price, short position holders will pay funding to long position holders. The funding rate increases as the difference between the contract price and the index price increases, this encourages the holders of the position paying funding to close their position and bring the contract price back towards the index price.
BitMEX first introduced perpetual contracts in 2016 and has a detailed guide on how funding is calculated here, you can also see the details from FTX and Binance. The details of Predy funding rate calculations are explained in the Funding Rate page.
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