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Fee Types on Lynx
Over the lifecycle of a trade, there are a few different fees that might apply to a trader:
To see a sample trade that applies all the potential fees, skip ahead to Sample Trade.
Traders are charged an opening fee which is deducted from their initial collateral amount. The opening fee for a trade depends on the collateral asset and traded instrument selected and is calculated as a percentage of the total trade size.
For example, assume we're opening a position using 100 DAI initial collateral at 20x leverage and an opening fee of 0.08%.
Pre-Fee Position Size: 2000 DAI = 100 DAI initial collateral * 20x leverage
Opening Fee: 1.6 DAI = 2000 DAI pre-fee position size * 0.08% opening fee
Position Collateral: 98.4 DAI = 100 DAI initial collateral - 1.6 DAI opening fee
Position Size: 1968 DAI = 98.4 DAI position collateral * 20x leverage
The artificial spread depends on the traded instrument selected and is derived by aggregating that instrument's spread across leading spot markets. The artificial spread is then applied to the current price of the instrument (as reported by the price oracle) to mimic the entry price that would be received on an order-book exchange. Depending on whether the position is long or short, the artificial spread will make the entry price either higher or lower, respectively, than the price initially reported by the oracle.
As the artificial spread uses live data and real market conditions, it is adjusted periodically on Lynx to provide the most current value. Smaller and less liquid instruments receive a higher spread, while large-cap instruments with deep liquidity would receive a lower spread.
For example, assume the price for ETH/USD (as reported by Lynx's price oracle ) is $1500. If the spread for ETH across leading spot markets is 0.02%, the entry price given to traders going long on ETH would be $1500.30 ($1500*100.02%) and those going short would be $1499.70 ($1500*99.98%).
Note: When exiting a position, the price reported by the oracle is used as is with no artificial spread applied.
Unlike the artificial spread which is determined by external market conditions, the artificial price impact for a trade is dependent on factors internal to Lynx, namely:
- The chosen instrument to be traded
- The position size on Lynx
- The total open interest of the traded instrument on Lynx
These factors are considered in a formula developed by Lynx which - after referencing the depth of the traded instrument on major exchanges as a benchmark - calculates the artificial price impact for a given trade within Lynx. The artificial price impact, if any, is then applied to the current price of the instrument (as reported by the price oracle) to adjust the entry/exit price of the trade.
The artificial price impact fee serves as a crucial deterrent to price manipulation exploits, effectively preventing traders from manipulating the spot price of a shallow market to benefit their position on Lynx. In general, the artificial price impact fee increases with larger order sizes on less liquid markets, thereby reducing the potential profit such large trades could earn and making it cost-prohibitive to manipulate the market price for these orders. Likewise, smaller order sizes on more liquid markets will incur a smaller artificial price impact fee.
The funding rate is a fee exchanged between traders, where traders on the more exposed side of an instrument pay funding to traders on the less exposed side. For example, if 70% of open interest for BTC/USD is in long positions while 30% is in short positions, traders who are long BTC/USD will pay the funding rate to traders who are short BTC/USD.
The amount of funding paid for each tradeable instrument depends on how great the imbalance is between open interest in long and short positions. This imbalance is referred to as the skew, where generally a greater skew correlates with a higher funding rate paid. Skew is defined as:
whereas the relationship between skew and the funding rate is:
Current funding rate applied across all tradeable instruments on Lynx
By incentivizing the lesser exposed side, the funding rate encourages balanced open interest between longs and shorts on any given instrument. This is an important mechanism in reducing LPs' exposure to trader PnL, as every winning trade (ie. debt to the liquidity pool) is approximately matched with a losing trade of similar size (ie. credit to the liquidity pool).
The funding rate is displayed on the UI in the following manner:
- A negative, red value means the position is costing you money.
- A positive, green value means you are earning money from the position.
Funding rate displayed as a percentage annualized, and per 8 hour period for both Long and Short traders
The interest rate (IR) is a dynamic fee continuously applied to traders' positions for the time it remains open. This fee is paid by traders and goes towards liquidity providers, and is applied to a trader's virtually borrowed amount, calculated as:
For example, a trader with $100 of collateral and a Take Profit of 250% will pay the IR on the virtually borrowed amount of $250. The interest rates across all collateral markets on Lynx is currently as follows:
Current interest rate applied across all collateral markets on Lynx
It is important to note that the IR is floating and not fixed, with rates getting updated on a per-block basis. The IR depends on the utilization of the liquidity pool and follows a single kink model, with higher pool utilization resulting in higher rates, acting as a strong incentive to attract additional liquidity.
Traders are charged a closing fee once their position has been closed, be it manually, by TP/SL, or by liquidation. Like the opening fee, the closing fee varies per collateral asset and traded instrument used and is calculated as a percentage of the total trade size at the time of closing:
Position Size at Closing: 1968 DAI = 98.4 DAI position collateral * 20x leverage
Closing Fee: 1.5744 DAI = 1968 DAI * 0.08% closing fee
As explained in Liquidations, a trade is eligible for liquidation when a trader's losses and fees - as calculated by PnL - reach a threshold equating to 90% of their position collateral. At this point, 90% of the position collateral is attributed to losses and fees while the remaining 10% of the position collateral belongs to the trader. When completing a liquidation, the system levies a liquidation fee of 0.50% on the remaining 10% of position collateral belonging to the trader (ie. a fee of 0.05% on the total position collateral). The remaining position collateral after the liquidation fee has been removed is then returned to the trader's wallet.