Trading the Funding Rate on Parcl

Disclaimer: This article has been written purely for educational purposes and as a supplemental explanation of how funding rates work on Parcl. This article is not intended to be investment advice of any kind.

Funding rates on Parcl are very different from what you may see on Perpetual Futures trading platforms throughout DeFi. Funding rates on Parcl continuously move in the direction of the majority market sentiment between long and short traders.

The speed at which funding rates move depends on how skewed market sentiment is between long and short traders—where the larger the majority, the faster the funding rate moves.

Accrued funding on a given position is calculated by taking the difference between the Entry Funding Rate and the Exit Funding rate. Accrued funding on a position is paid to the market’s pool by the majority side and received from the market’s pool by the minority side—long or short for a given market.

Given that traders in the minority always receive funding so long as their position remains in the minority, traders have an opportunity to exclusively trade funding rates on Parcl—so long as they can avoid price risk associated to a given market.

For example, take a market that is 60% long and 40% short.

A trader placing a short position will be able to collect accrued funding so long as they enter a position that maintains the short side as the minority side. In other words, the short position cannot be more than 49.9999999% of the market.

This trader will have to monitor the market for changes in market sentiment—shorts becoming the majority—or price movements in favor of the long side.

For educational purposes, we’ve put out an example bot that programmatically executes this trade here.

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