Glossary

Demystify finance and crypto terminology

Funding

The funding rate is a small fee paid by one side of a derivative contract to the other at a set interval, which could be hourly, every hours, daily, etc. If the fee is positive, longs pay shorts, and if the fee is negative, shorts pay longs. It's purpose is to encourage the price of a perpetual futures contract to stay around the underlying spot index price though self-arbitrage.

Spot Basis

The basis refers to the difference between the spot and the (multiple) prices of the futures contracts for a financial instrument. In the case of the spot basis, that difference is that of the spot versus the perpetual future. Depending on whether a futures contract is dated or perpetual, the basis can guide us in determining the relative cost someone incurs or earns by trading a futures contracts instead of buying or selling spot contracts.

Liquidations

A position gets liquidated when the mark price of an instrument falls below the bankruptcy price of a trader's entry, in other words, if the price were to go any lower, the trader would go below his or her maintenance margin.

Rolling Annualized Basis

The basis refers to the difference between the spot and the (multiple) prices of the futures contracts for a financial instrument. In the case of the futures basis, it measures the effective annual interest rate to go long a future versus holding spot. Depending on whether a futures contract is dated or perpetual, the basis can guide us in determining the relative cost someone incurs or earns by trading a futures contracts instead of buying or selling spot contracts.

Term Structure

The term structure refers to the 2D relationship between the different prices and the different expirations of the dated futures. Similar from the futures basis (or rather, an annualized basis/yield can be directly derived from the term structure) the term structure can give us an insight on the relative prices the different futures contracts are trading at.