dYdX is able offer a competitive trading fee schedule because inherently it is a layer 2 dApp which means execution takes place away from the much slower and costlier layer 1 environment. As such, these platform savings are passed through to users in the form of a favourable cost structure.

By definition, a trader can have three positions:

- Long: you bought the perp because you think the value of a crypto asset vs USD is going up
- Short: you sold the perp  because you think the value of a crypto asset vs USD is going down
- Flat: you have no position

Beyond this, some traders take positions vs other positions or as part of a portfolio so going long for example doesn't always equate to having a positive view of the price direction of an asset. 

Consider temporarily having no current trading position as a position in of itself because it gives a trader time to plan the next move without taking on positions with negligible conviction. The ability to plan the next phase of attack without clouded judgement is a very valuable option. 

Being aware of your directional position is also key in keeping track of your funding positions as this dictates whether you pay or recieve. Ultimately, directional exposure determines pnl when markets move.

Derivatives are financial contracts which derive their value from the price of an underlying asset such as a futures contract which obliges two counterpaties to exchange an asset at a given date and price. Perpetuals are similar but have two key distinctions:

1. They do not expire 
2. They do not settle 

In other words, the two opposing counterparties never exchange the underlying asset and such contracts can be traded indefinitely without the trader bearing the costs and risks associated with rolling expiring positions to keep them open. Rolling futures in order to maintain expousre to an underlying asset can be a large operational risk so the exisitence of perpetuals helps reduce this risk and allow razor sharp focus on actual trading. 

dYdX offers perpertuals trading capabilities on a wide set of cryptocurrency USDC pairs. 

dYdX has a user-friendly and aesthetically pleasing trade page. The dYdX trade page provides you with a(n):
- trade sidebar where you can "choose the market, leverage type, trade direction, order type and leverage."
- price chart to view historical pricing with different candlesticks as well as tools and indicators that can be paired with trading view.
- depth chart showing culmulative bids and asks as well as their prices.
- order book showing open orders on dYdX, including the size, price and spread for the bid and ask sides.
- position / balance panel with information on limit orders and filled orders, and some additional information for perpetual trades (i.e. "funding and equity statistics). 

It is important to have all of this information on one platform because, as a trader, you want to be able to access make the right decisions based on the situation at the time and your allocation. Having a user-friendly trade page makes it significantly easier for a trader to execute trades or consume the required information without much hassle. Finally, having an aesthetically pleasing trade page is beneficial because it differentiates dYdX from competitors and is more likely to attract new users while maintaining existing users. 


Liquidity refers to the depth of buyers and sellers of a particular asset on exchange across numerous price points. This is one of the holy grail's for traders because it determines the reality of executing a trade. The more liquidity is present, the less impact an executed trade will have. This is important for traders because it underpins the feasibility of a particular trading strategy and contextualises the magnitude of their position size. Also, it tells an important message of how quickly a trader can add to or reduce a position.

The transaction fee (often called ‘gas fee’) is the price we pay to miners by way of compensation for processing and validating our transactions (which requires significant computing energy). You can set a limit, stating how much you’re willing to spend on a specific transaction; however, if at that moment in time the limit is too low then your transaction can be ignored. Think of it as the (hidden) fee you pay to transfer money from a domestic bank account to foreign bank account.

Whenever the ethereum network is clogged due to high demand (e.g. a lot of transactions are being processed), the network slows down and transactions become more expensive. On the Ethereum network, these transactions are paid in ETH and can often be astronomical. To add, if your transaction fails, often you lose the ETH spent on that transaction. Other times, it may be taking the network too long to process the transaction due to the fee you’ve locked in, which means to speed up the transaction or cancel the transaction you have to pay a new transaction fee.


Staking is the mechanism by which DYDX token holders can commit their holdings to the protocol's safety net as a means to help secure the network via the Safety Pool and contribute to liquidity via the Liquidity Pool. 

As an active user of the dYdX exchange, earning further rewards beyond the trading landscape can be attractive when it comes to overall returns.

It's important to understand the longer term nature of this activity compared to shorter term adjacent  activities such as day trading. For instance, stakers must request withdrawals at least 14 days before the end of an epoch in order to do so successfully at the end of that epoch. This is in order to ensure deep visibility of fund balances in the pools. 

Staking involves smart contract risk which is inherent across the Defi landscape, nevertheless the extensive auditing process and success so far in production is a strongly positiive signal. Thereafter, each specific staking pool will have its unique risks associated with the function of the pool itself. 

The major takeaway from this is that staking rewards should be viewed essentially as compensation for contributing to a pool of funds which serves some purpose within the protocol more broadly. Through these lenses, users can participate with a much higher degree of conviction as aware of all the parameters.

This refers directly to the accessible position size in terms of notional and is a function of leverage rate and deposit size. For example, a wallet which has deposited $1000 USDC on the dYdX platform will have maximum buying power of around $20,000 depending on the trading pair which is 20x leverage - this trader has accessed the potential to open a position size much bigger than initial deposit which is treated as margin for such purposes. This can create outsized pnl but also outsized losses in event of a liquidation. For instance, at 20x leverage the liquidation price will be in the region of up to 5% worse than executed price. If your trading strategy is exposed to risk beyond 5% it may be a good idea to increase deposit size, decrease leverage or use other risk managment tools such as stop loss orders in order to properly manage exposure and avoid liquidation.

As the contracts trade in perpetuity, funding rates act as a natural mechanism to keep the index price of the underlying and the price of the perpetual in close tandem. For example, if the index price is below the price of the perpetual this shows the latter is trading expensive and is probably the result of more buyers vs sellers. As a result, the funding rate will be positive and longs will have to pay to open/maintain positions whereas shorts will recieve this payment instead. In theory, this incentivises more sellers/shorts to enter the market and provide liquidity and help to balance out the buy vs sell ratio. For traders on dYdX funding rates can either be a source of yield or another indicator to add to your toolbox. 

Yield: suppose the ETH/USDC hourly funding rate is 0.01% this means long positions pay and short postions recieve. In order to soley take advantage of the funding rate, traders can short the perpetual and take the corrosponding long underlying cash position so as to eradicate directional risk and recieve yield. Note there will still be execution risk, liquidation risk and other associated trading risks.

By analysing the trend, inflections or lackthereof, a trader can build a picture of supply/demand in the system and preemptively act according especially in the event of a large imbalance. For instance, a trader may want to increase leverage or position size when funding is cheap and directionally in line with your trade idea. Oppositely, a trader may realise a position is too crowded and therefore reduce position size accordingly.

Leverage is a powerful tool that provides traders with the capital required to trade positions larger than their deposited funds and overall equity. The higher the leverage rate is, the greater sensitivity a traders account value will have to changes in the underlying market in which they are trading. This means percentage moves in the traded market will result in greater dollar PNL than if leverage was 1x or less. 

It's important to keep this in mind because although gains are magnified, losses are magnified too so managing overall account leverage is key. If mismanaged, leverage can be like a spreading wildfire especially as it is not a static number - it increases and decreases as PNL changes the overall value of account equity. Traders with good longevity usually keep an eye on account leverage and manage accordingly so that they preserve equity, avoid liquidation and live to trade another day!

Often, platforms/protocols will have certain restrictions. Max position size is one of them. Max Position Size is the maximum position allowed at that point in time. This can sometimes appear as a limit to how large of a position you can take and how many positions you can have open at any given time. Trades that somehow exceed the max position size can often either be restricted with regards to execution or be closed. dYdX has a max position size for each market to secure the safety of the protocol. Without a max position size, traders would be able to overextend their trades, resulting in the collapse of dYdX. 

dYdX is part of the Starkward ecosystem which was launced on Ethereum mainet in June 2020. As a layer 2 stack, It aims to help scale the Ethereum network while improving privacy by using natively designed suite of Stark-tech. Thus, dApps entwined within its ecosystem can achieve limitless scale for computation "without compromising Ethereum's composability and security." 

In order to trade on dYdX, the protocol stipulates that traders must deposit collateral into the smart contract. Thereafter, traders are able to open positions in perpetuals with the ability to leverage up to 20x. 

The importance of this is that deposits are collatorised and though it allows traders to open positions, in the event of a liquidation it will be absorbed by the protocol. Therefore, traders should ensure their risk appetite is reflected in their deposit size. Note that deposits can also be referred to as margin as it allows the trader to open postions using deposits of a fraction of the notional size. This process is also known as leverage.

For a fee, fast withdrawals engage a liquidity provider that sends funds immediately rather than waiting for a Layer 2 block to be mined which is the case with slow withdrawals. Beyond that, the user must carry out a second step - sending a Layer 1 Ethereum transaction - in order to clam funds.

The key distinguishment is the use of a liquidity provider. Users should ascertain their urgency and current gas fees as this represents an operational cost of trading. It may not make too much difference in a single instance but it could be worth strategising around this workflow in other instances where being lean at the margins matter.

In the context of margin trading, price slippage refers to the change in price between when you send your order and when it is executed. As we know, markets move around a lot so this is expected. Some traders may want to execute taking the these moves in their stride but others may want to reduce the trade off. One way to do this is by using limit orders instead of market orders so you know exactly what price you will be filled at if the limit is in play. Another way is to set a slippage tolerance level for which you are comfortable with. Again, subtle nuances but aggregated and scaled up can result in sizeable impact.

dYdX Improvement Proposals (DIPs) form the process of decentralised goverance across dYdX. DIPs follow a specfic lifecycle from inception to actual voting. The key to note is that participation is open and permissionless. Most community members, as defined by dYdX token holders might only participate at the voting stage but there is huge scope to have your say long before this during forum discussions, feedback loops and snapshot pollings. Participation for token holders is not mandatory nor do you lose governance rights when staking. This is profound and puts the power firmly back into the users hands.

When using the dYdX prototcol, deposited collateral is held within a smart-contract rather than a centralised party which inhernetly allows traders to benefit from a top down decentralised structure as they maintain custody of their assets. When using a centralised platform "not your keys, not your coins" rings true in relation to private key ownership being synonymous with asset custody. If a platform decides to freeze assets, technically it can do so without a users' permission. Operating within a decentralised enviroment allows a user full control and visibility of the smart contracts used to execute their trading actions.

Why is trading onchain is better than offchain?

dYdX offers various products; however, as demand for perpetuals and margin trading increased, dYdX partnered with StarkWare to build a Layer 2 protocol for cross-margined perpetuals. The benefit of this is lower gas costs, which results in lower trading fees and lower minimum trade sizes. 

Though dYdX explored other Layer 1 (L1) and Layer 2 (L2) solutions, it was important that dYdX leveraged ZK-rollups compared to others because it offered a number of benefits most relevant to dYdX, including:
- privacy benefits as StarkEx (StarkWare's service) does not pubsh all transaction details on-chain
- security benefits linked to ZK-rollups' reliance on validty proofs instead of fraud proofs 
- capital efficency for withdrawas compared to Optimistic Rollups
- scalability as it has a lower cost due to less on-chain resource consumption

This combination of on-chain and off-chain transactions is ideal for dYdX as they continue to increase their offers and scale, until Ethereum 2.0.


dYdX adds money to the user's L2 positions on the L2 based on what it's observed on the Ethereum (L1) transactions for said user. The batching of transactions to L2s is extremely cost-effective for dYdX and the user. 

Understanding trading fees are important for determining the cost of trading and a component in calculating the net profitability of a trade. dYdX operates a market maker/taker model which is as follows:

- market makers contribute to liquidity as their limit orders are passsively stacked across the order book and provide market depth.
- market takers on the other hand remove liquidity and cross the bid-ask spread in order to do so.

Market makers pay a lower fee than market takers so there is an inherent incentive to provide liquidity compared to removing liquidity. Distinguishing between execution costs are an important consideration depending on your trading style as it can impact on net profitability especially for low profit-margin trading strategies. 

Here's the exciting bit and another example of the uplift available when trading on-chain at dYdX. Holders of DYDX or staked-DYDX recieve a trading fee discount relative to their current holdings and beyond that, once full decentralisation is achieved, trading fees will find their way back to stakers. Until then, dYdX will continue to cover transaction expenses and continue to incentivise.

Hedgies are a collection of 4,200 NFTs on Ethereum launched by dYdX. These NFTs can be used as avatars and have additional utility such as receiving a 1 tier increase in $DYDX fee tier discount on the dYdX protocol. Hedgies are a great way for dYdX to grow and unite its community.  

Before making a trade, it is important to have as much relevant information as you can pertaining to the market you are trading. Macro-level information can be gathered by browsing the web. Micro-level information, especially information specific to a platform can only be gathered by interacting with that platform. dYdX makes it easy to have the market details by providing traders with a 'details' tab where they can see information on: market name; tick size; step size; maximum leverage; initial margin fraction; maintenance margin fraction; minimum order size.

as a trader who uses leverage, some of this information (i.e. tick size, maximum leverage and minimum order size) will be important and relevant to you because you will want to know what your constraints are and the parameters of the perp contract as well as the exchange itself.

Without this information clearly displayed and made easily accessible, it is very easy for someone less experienced to be significantly overleveraged and to interact with markets they have a limited understanding of.

Governance refers to the mechanism used to decide and implement structural changes on-chain and within  crypto protocols. Crypto at the core places dencentralisation above all other governance types, so it's not surprising that dYdX seeks to function in the same way. This initiative is driven by the dYdX Foundation and will culminate in a fully decentralised Layer 2 Perpetuals Protocol governed by a community of users (YOU) rather than one central point.

In practice, this means users will not only recieve a world-class product but also have the possibility to contribute to its governance. 

A "spread" in the context of trading perpetuals refers to the difference between the best bid and best ask. Therefore, for a market taker it represents an implicit cost of trading as in order for a buyer to take liquidity, they would have to participate at the best ask which will be marginally worse than the best bid price. In liquid markets, spreads will be quite tight and this implicit cost will be neglibile and not noticeable for majority of participants. However, in times of extreme volatility or in pairs which are not as liquid others, it's an important consideration as spreads will be generally wider reflecting the lower levels of liquiditity present.

Launched on 25th January 2022, Tradng Leagues is an opportunity for traders to compete with each other on dYdX and see who the best trader is on a weekly basis (ranked by PnL).  Each player has the opportunity to win up to $350,000 in weekly cash prizes, as well as being crowned the best trader in crypto. The leagues vary from Bronze to Diamond, with entry requirements for each league. I.e. to participate in the Bronze League you need to have a starting balance of $500.

Perpetuals are traded in pairs because in order to price these assets they must be viewed in terms of a reference value - otherwise trading ETH vs ETH wouldn't create any trading opportunities. For example ETH-USD on the dYdX platform refers to the value of ETH in terms of USD.

Profit and loss refers to the return made on a trade and on a trading account overall. It is usually be expressed in monetary or percentage terms. Ultimately, positive pnl is the aim for a trader but this isn't always the sole driver of decisions. Often, pnl distorts perspective from a psychological perspective. For example, a trader could have a winning position and sufficient conviction but in the midst of volatility over-fixate on negative pnl and make rash decisions. Managing such volatility and mindstate is a coveted skill. Oppositely, when traders generate positve pnl they could get excited and exuberant in their decision making which again is another clear distortion. Pnl is perhaps the most important metric but detaching emotion from it will do wonders for decision making.

This concept refers to the default method of margin treatment on dYdX which stipulates that multiple positions can be opened and share the same collateral. The advantage for this is that in conjuction with portfolio margining whereby gains from one position offsets losses from other positions, a trader can simply deposit one asset (USDC) and trade numerous positions on the same account. Therefore, a trader may want to consider the impact each consequent position may have on their portfolio as a whole especially as if the total account value falls below the the total inital margin requirement the account may be restricted from withdrawals or liquidated entirely. Traders who prefer to treat each position in isolation should use seperate wallets and thus seperate dYdX accounts.

The total number of oustanding perpetuals contracts for a given underlying so not a sum of total longs and total shorts. This can be presented in notional terms or by a total count of open contracts. dYdX displays this data in notional terms and is another great indicator of overall activity. Keeping tabs on how this figure trends provides another datapoint to consider for a traders' toolkit. Whereas trading volume tells a trader how many trades have been made in a particular timeframe, open interest only changes if net positioning actually changes. If there is an influx of new ETH-USDC buyers buying from new sellers this will be reflected in open interest but if these new buyers are buying from existing longs then there will be no net change. This can help a trader decipher the nature of any observed shifts in momentum.

When users deposit funds on dYdX they are doing so into smart contracts rather than giving up custody of their assets to a centralised exchange. These smart contracts are secured by the Ethereum blockchain which thus far has been extreme battletested. All DeFi activity possess inherent smart-contract risk because you know, bugs are a normalcy of life, but dYdX products are built by world class engineers whose work is audited to the deepest levels. In line with crypto principles of transparency, contracts and security audits are open-source which means absolutely anyone can verify. Good luck asking centralised exchanges to open up the hood to these depths. There are also account delay processes that creates a buffer for protocol changes meaning that suspicious behaviour can be flagged in good time before being unleashed - thus avoiding mayhem!

The differences are subtle but at the extreme margins, these nuances can be the determining factor in certain crunch time decision making.

The mid market price represents the midpoint price of an asset (or perpetual pair) inbetween the best bid and best ask. Ultimately, this price is a reflection of all market forces at play where quantity supplied intersects with quantity demanded. 

In contrast, the index price is an aggregated price sourced from numerous exhanges. Aggregation of this kind reduces the "key man" risk present especially during periods of extreme volatility where some exchanges fall over - it helps to maintain validity and reliability. In the dYdX ecosystem, index price is used to trigger stop orders. There are usually miniscule differences between index price and the other price points but it is useful to be aware especially at the margin when assessing whether orders will be triggered or implementing last minute adjustments! 

Following on in the same vein, the oracle price uses a similar logic but instead uses numerous on-chain price oracles as a source instead. Within dYdX, the oracle price underpins collaterisation calculations and liquidation references. Traders should be mindful of this also. 

This refers to a defined period of time. While each blockchain and protocol will slice time differently, dYdX's epoch schedule is 28 days which covers all rewards and staking contracts. This is important because related actions generally have timescales derived from an epoch. For example, trading rewards are claimable approximately 7 days after the end of an epoch so when devising your overall strategies having a strong handle on timeframe structures is massively important. In light of community governance, the length of an epoch and be modified within specific ranges via a vote. 

dYdX operates a liquidation engine that kicks in when the value of a trader's account falls below the required maintainance margin level. 

- maintainence margin: the minimum account value required once positions are opened
- initial margin: the required deposit needed to open positions

At this point, positions held in the account are closed partially or in entirety at the flagged liquidation price. Any profit or loss from the forced closure of this position is taken on by the insurance fund which is core to the reliable functioning of the ecosystem. There is a pre-defined computation that determines how much of an account is liquidated but the main insight from this process is threefold:

- the liquidation engine contributes to the stability and sensible handling of collaterised leverage in the ecosystem. Platform (not market price) contagion should be limited in the face of large account liquidations so traders can be confident in trading across numerous environments.
- liquidations can cause large market impact so traders should consider how this may impact their positions and leverage. Remember, leverage increases when positions perform badly and collateral is not topped up.
- many traders use stop losses in order to manage their leverage levels and keep their account solvent (alive!).

dYdX launched a leaderboard; a scoreboard displaying the Ethereum address of those trading on dYdX alongside their ranking based on their P&L. Initially, the leaderboard served as a way to identify the top traders. Since then, however, dYdX has expanded this to benefit their users even more. Following the launch of the Hedgies - the dYdX NFTs - dYdX decided to reward the top trader with a Hedgie. This reward is given daily to whoever is the top trader of the day. Similarly, with the introduction of the Trading League, dYdX is able to assess the top traders weekly across the varying leagues (i.e. Diamond League, Platinum League, Gold League, Silver League, Bronze League).

The introduction of a leaderboard was a great way to foster a friendly competitive environment between traders using the dYdX protocol. The evolution of it (with regards to users being rewarded for their performance via NFTs or other rewards) has meant that existing users derive even more value from dYdX, and new users are attracted by the prospect of being rewarded for excelling.

Layer 1 can be described as the underlying blockchain such as Ethereum. This ultimately dictates how dApps operate under the hood but at the same time due to immutability of code which serves as a massive positive for security, it requires forking, sharding , consensus protocol changes or external developments to deliver improvements often via layer 2 solutions. For example, one of the known drawbacks of ethereum is the costly transaction structure. Nevertheless, Layer 2 networks  overlay on top of layer 1 (without changing it) adding much needed 'upgrades' that results in a much greater experience overall. 

dYdX moved cross-margined perpetuals  to layer 2 "To significantly scale trading, dYdX and StarkWare have built a Layer 2 protocol for cross-margined perpetuals, based on StarkWare’s StarkEx scalability engine and dYdX’s Perpetual smart contracts. "

this allows dYdX to settle far more trades ''which publishes Zero-Knowledge Proofs periodically to an Ethereum smart contract in order to prove that state transitions within Layer 2 are valid.' while maintaining the security derived from ethereum layer 1

takeaway is lower trading fees, gas costs and thresholds for minimum trade sizes

The 0x API might be mistakened for a bull horned animal but in fact it's simply a DeFi data and liquidity endpoint that allows dYdX to access on-chain liquidity from an array of networks which gives users confidence that the best price will be attained when deposited assets are converted to USDC.

There is a key difference between the dYdX Foundation and dYdX Trading Inc which users should be aware of as it underpins the path to ultimate decentralisation. The Trading Inc is responsible for building the layer 2 perpetuals trading product with smart contract building blocks on the ethereum network allowing users to participate without the need for intermediaries and middlemen. Its focus is on product development with a razor sharp focus on decentralisation. 

The non-profit driven Foundation was formed independently in Aug 2021 to support and drive the growth of current and future implementations of the dYdX Layer 2 Protocol as well as the ecosystem in general. The manadate is far reaching to help the foundation deliver on this. This encompasses all the core values crypto is based on - trustlessness, openess, decentralised governance and much more. The foundation does not engage in speculative activities but instead creates a clear path for community members, users and stakeholders to drive the direction of the protocol in a fair, stable and secure manner.

Users are no longer solely users, they're owners too.

dYdX differs to AMM models like Uniswap because at the core, its exchange uses cryptographically-signed off-chain messages to construct its orderbook and match buyers and sellers. The mechanism is non-custodial meaning that users retain ownership of their assets. While settlement occurs on-chain, much of the heavy lifting happens off-chain which is great for a speedy user experience. Given this infrastructure, the source of liquidity is varied:

- users
- liquidity providers
- market makers

Depending on the nature of a market participant, liquidity may be delivered via API or the trading interface directly and this process is democratised insofar as barriers to entry so we all have access to a world class DeFi trading experience. This is good to know because if users understand where liquidity comes from they can be confident in the long term sustainability and eradicate disruption at the point of trading.

When you have opened up a trading position, irrespective of the direction and strategy, it is important to know how to use the trading platform to manage your risk. The metrics to keep a close eye on before and after executing are:

- Leverage
- Liquidation Price
- Unrealised P&L
- Realised P&L
- Average Open
- Average Close
- Net Funding

Keeping close tabs on these items is important because it reflects reality. It may sound trivial but many traders use "practice accounts" and deploy trading strategies in test envioments so its good to be hyper aware of the reality of any given position. Each trader will have their own way of managing risk positions -  some will react based on these parameters and others will intentionally do nothing (trust their model) no matter what. 

Trading volume refers to the total amount of trades that have occurred across all counterparties over a specific period of time. This can be measured in terms of a number of variables which are highlighted on the dYdX platform: 

-trading volume: indicates the dollar value of all the trades that have occured for a partiular pair or group of pairs
-No. of trades: indicates how many distinct trades have occurred for a partiular pair or group of pairs

Using both of these elements in conjuction is valuable and a worthy item in the toolkit because it can provide a trader clues as to which type of market participants are most active. For example, if the frequency is low but notional is high this suggests trading volume is dominated by larger traders. Analysing the change in volume over time is useful in assessing whether there is still interest in a trading pair or particular token and whether there has been a significant shift in momentum triggered. 

The annual percentage rate describes the value of rewards an individual recieve when engaging in lending, staking and other similar activities compared to the initial value of funds. It's expressed as a percentage return figure in annual terms. This means if the activity in question was engaged for 1 year, the return would be X. 

This is useful because it allows for comparison across activities but it's important to note that these rates may fluctuate and sometimes very drastically. It's not inconceivable that super high APRs aren't always sustainable and sometimes this can be reflective of underlying volatility and risk associated with the activity or token.

Within the dYdX ecosystem, traders recieve trading rewards and some look to supercharge returns by engaging in staking activities in return for an attractive APR.

Market Makers contribute to deep liquidity by layering the order book. They usually seek to profit from spreads otherwise known the gap between the bid and ask as well as by taking on outright positions. MMs are usually institutions who participate in these activities at scale but individual traders on dYdX can also do so by tweaking advanced settings on limit orders to deploy market maker treatment. Traders should be aware of how MMs operate because a large portion of liquidity is provided by them so understanding their incentives and behaviour can help effective engagement within the dYdX ecosystem.

The funding rate is a key mechanism to keep the divergence between the index price of an underlying and the perpetual minimal. At the core, it serves as a natural incentive structure that attracts liquidity in a way that offsets buy/sell imbalances that may have resulted in a significant difference between a perpetual contract price and the corrospnding index price.

Interpreting the funding rate:
A positive number = shorts recieve interest, longs pay interest
A negative number = longs recieve interest, shorts pay interest
All payments are between traders! That means dYdX does not take a hair cut on these payments at all!

Frequency:
- payments occur every second
- funding rates are updated hourly but displayed as an 8-hour rate which essentially tells a trader what to expect to pay or recieve over an 8-hour time period
- funding payments are made in USDC and are reflected in Realized PNL for each given trading position

Price impact is another implicit cost associated with deploying your trades. If your order size is greater than the available depth of liquidity you will have a greater impact on price. This is more pronounced for market taker order types as they as they seek to take available liquidity. Therefore, assessing your order size, available liquidity and order type is especially useful in making informed trading decisions and any resultant impact will be accounted for - no one likes to be shocked! Lastly, bear this concept in mind when thinking about the impact of larger players in the market, especially in lower volume days. Some traders tweak their normal decision making processes based on this nuance. 

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