The Premium Index: How Perpetual Prices Stay Tethered to Spot

Premium Index = ( max(0, Impact Bid Price − Index Price) − max(0, Index Price − Impact Ask Price) ) / Index Price

BitMEX uses a close variant that measures the impact prices against the fair (mark) price, divides by the spot price, and adds a fair-basis term, so the precise reference and divisor are not universal. The shape is the same across venues even where the inputs are not.

Read the formula slowly. If the impact bid sits above the reference, the perp is rich and the first term is positive. If the impact ask sits below the reference, the perp is cheap and the second term subtracts. When the reference sits inside the impact bid-ask spread, both terms are zero and the premium is flat. Using a sized order rather than the top-of-book quote means a trader cannot tilt the premium by parking a tiny order at an extreme price. They would have to absorb or supply real depth.

How does the premium index feed the mark price and funding rate?

The premium index does two jobs.

First, it builds the mark price, also called the fair price. The mark price is what exchanges use to value unrealized PnL and to trigger liquidations, and it is deliberately not the perpetual's last trade. A common construction is fair price = index price + a moving-average basis derived from the premium index. By marking positions against an index-anchored fair price rather than the raw traded price, the venue prevents a brief wick or a thin-book spike from cascading into liquidations that should never have happened. This is the core reason the premium index exists at all: it protects traders from manipulated or illiquid prints driving forced closes.

Second, the premium index is the dominant input to the funding rate. The typical funding formula is:

Funding Rate = Premium Index + clamp( Interest Rate − Premium Index, ±clamp_value )

The interest-rate component is small and usually fixed (Binance has long used 0.01% per 8 hours as the base for BTC and ETH, with the clamp commonly set at ±0.05%). The premium index is what moves. When the perp trades persistently rich, the premium is positive, funding goes positive, and longs pay shorts. That payment is the economic pressure that pulls the contract back toward spot. When the perp trades cheap, the premium is negative, funding flips, and shorts pay longs. Funding is not a fee the exchange collects. It is a transfer between position holders, engineered so that the premium index has a cost attached to it. A free funding rate calculator turns a given rate into the cash payment per interval.

Most venues sample the premium index frequently (BitMEX, for example, samples once per minute, while several venues sample sub-minute) and average those samples across the funding interval to produce the rate that settles. So the rate you eventually pay reflects a time-weighted picture of the premium, not a single snapshot. A perp that was rich for five minutes and flat for the rest of the window will settle at a far smaller rate than one that held a premium the whole interval.

Why does the premium index differ across exchanges?

Two exchanges quoting the same asset can show different premiums and different funding for the same hour. The construction explains why.

The index basket differs. Each venue chooses its own constituent spot exchanges and weights, so the "spot" reference is not identical. The marking reference and divisor differ. Some venues measure the impact prices against the index price, others against the fair price, and they divide by the index or the spot price, so the same book can yield a slightly different premium. The impact notional differs. A larger impact margin notional walks deeper into the book, so a thinner perp shows a more sensitive premium on a venue that sizes the probe aggressively. The funding interval differs. Most majors run 8-hour funding, but several venues switch to 4-hour or 1-hour intervals on volatile or low-liquidity contracts, which changes how a given premium translates into a settled rate. The clamp and interest base differ. These caps and floors are venue-specific and bound how extreme funding can get regardless of the raw premium.

The practical takeaway is that premium and funding are venue-relative measurements, not a single market truth. Comparing them across venues is itself a signal, which is exactly why aggregated funding views matter.

What does a persistent premium tell you?

A single high premium reading is noise. A persistent one is information.

A persistently positive premium means leveraged demand is paying up to be long, repeatedly, despite the funding cost. It says positioning is crowded on the long side and that the spot-perp basis is being held open by derivatives flow rather than spot buying. A persistently negative premium is the mirror: shorts are paying to stay short, often during forced de-risking or a strong directional conviction lower.

Neither is a buy or sell call, and this is not one. A stretched premium tells you where the leverage sits and who is paying to hold it, which is context for crowding and for the conditions under which a funding-driven unwind becomes more likely. It is one input among order flow, open interest, and basis, never a standalone trigger.

To use the premium index well you need to see it the way the exchanges compute it: index-anchored, sized off the book, and compared across venues rather than read from one. Athenum aggregates public market data across 14 exchanges into a single workspace, with funding rate analytics, CME gaps and basis tracking, and aggregated order book depth in the same view, so the premium that drives each venue's funding is observable instead of inferred.

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