# Funding Fee

Funding rate is the key to maintain the perpetual contract price in balance with the spot price. The underlying principle is: when the contract price is higher than the index price, long position holders compensate short position holders; conversely, when the contract price is lower than the index price, short position holders compensate long position holders.

Based on the pricing mechanism in the previous section: when the LPs hold short position, long position holders compensate short position holders; conversely, when the LPs hold long position, short position holders compensate long position holders.

The Funding Rate is calculated and charged/paid in real time, and the specific calculation formula is:

<figure><img src="/files/no2Mu3nUcTaRZTSRodpO" alt=""><figcaption></figcaption></figure>


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