Merkle Trade
Ask or search…
K

Trading Fees

Entry/Exit Fee

Entry/Exit Fees are charged proportionally to the position size when a position is opened or closed. The maker fee rate is applied when a trade reduces the market skew, whereas the taker fee rate is applied when it increases the market skew.
  • Crypto: maker fee 0.05%, taker fee 0.1%
  • Forex: maker fee 0.0075%, taker fee 0.0125%
  • Commodities : maker fee 0.04%, taker fee 0.06%
Market skew is defined as Long OI - Short OI for each pair. For example, if the Long OI is 34k and Short OI is 14k on a pair, then the Market Skew is +20k.

Example

Let us say the Long OI is $1,500,000 and Short OI is $1,000,000 for a crypto pair. The market skew for the pair is +$500,000.
When a trader opens a new $500,000 long position, the taker fee rate will be applied as it increases the market skew (+$500,000 -> +$1,000,000), thus the charged amount is $500 (=$500,000 * 0.1% taker fee) as the entry fee.
When a trader opens a new $500,000 short position, then the entry fee of $250 (=$500,000 * 0.05% maker fee) is charged as it decreases the market skew (+$500,000 -> $0).

Price Impact

To balance the total open interests of long and short positions on the protocol, price impact is applied to the index price:
Price Impact=0.5(2marketSkew+SizeDelta)/skewFactorPrice\ Impact = 0.5\cdot(2 \cdot marketSkew+Size Delta)/skewFactor
Note that price impact sometimes works in the trader's favor.
Derivation:
  • Price Impact = 0.5 * (price_impact_before + price_impact_after)
  • price_impact_before = market_skew / skewFactor
  • price_impact_after = (market_skew + size delta of new position) / skewFactor

Example #1

  • Current BTC/USD price: $25,000
  • Long open interest in BTC/USD: $1,500,000
  • Short open interest in BTC/USD: $1,000,000
  • Market skew: +$500,000
  • BTC/USD skewFactor: 2*10^9
  • If trader opens a new $500,000 long position of BTC/USD, then the price impact would be 0.000375 (=0.5 * {500,000/ (2*10^9) + 1,000,000 / (2*10^9)}).
  • The trader would enter at $25,009.375 (+0.0375%).

Example #2

  • Current BTC/USD price: $25,000
  • Long open interest in BTC/USD: $1,000,000
  • Short open interest in BTC/USD: $1,800,000
  • Market skew: -$800,000
  • BTC/USD skewFactor: 2*10^9
  • If trader opens a new $200,000 long position of BTC/USD, then the price impact would be -0.00035 (=0.5 * {-800,000/ (2*10^9) -600,000 / (2*10&9)})
  • The trader would enter at $24,991.25 (-0.035%).
As illustrated in the Example #2, traders can trade with more favorable price than the index price as the position decreases the market skew.

Funding Fee

Funding fee serves to balance the total open interests of long and short positions on the protocol. If there are more users opening Long positions (longing) than the Short ones (shorting), the users who long pay a certain portion of the fees to the users who short. The cost corresponding to these fees is paid in the form of a Funding Fee.
When the funding rate is positive (+), there are more long trades on the protocol and the users who long effectively cover the funding fees for the users who short. When the funding fee is negative (-), it works in reverse to the above situation.
Velocity-based Funding Rate
As opposed to the traditional model where the funding rate is determined by the market skew, in our velocity-based funding rate model, the market skew determines the velocity at which the funding rate changes. The goal of the velocity-based funding rate mechanism is to make the funding rate more predictable for those who are interested in arbitraging the funding fee.
Here's the formula used to calculate the funding rate on position updates:
fundingRate=prevFundingRate+marketSkewskewFactormaxFundingVelocitytimeDeltasecondsInDayfundingRate = prevFundingRate + \frac{marketSkew}{skewFactor} \cdot maxFundingVelocity \cdot \frac{timeDelta}{secondsInDay}