Funding rate

The funding rate is a periodic payment between longs and shorts in perpetual futures. It keeps the futures price close to spot. With positive funding, longs pay shorts.

How it works

A perpetual future has no expiry date, so its price can drift away from spot. To stop that, the exchange takes a payment from one side every few hours (often every 8 hours) and gives it to the other. The exchange does not keep this payment.

If the future trades above spot, funding is positive: longs pay shorts, and holding a long gets more expensive. If it trades below spot, funding is negative and shorts pay. The payment is based on your position size, not your margin, so with leverage it adds up faster.

Traders read funding as a thermometer of crowd mood. Very high positive funding means many people are long with leverage, and a sharp drop can trigger a chain of liquidations. Deeply negative funding means the same for shorts.

Example with numbers

You hold a $10,000 BTC long and funding is +0.01% per 8 hours. You pay $1 every 8 hours, $3 a day. If funding jumps to +0.1%, you pay $10 per period and $30 a day, even if price does not move.

Common mistake

Beginners forget about funding and hold leveraged positions for weeks. When funding is high, the payments slowly eat the profit or deepen the loss. Before you enter, check the current rate and the time of the next payment, and for longer holds include funding in your trade math.

Questions and answers

What is the funding rate in simple terms?

It is a fee one side of a perpetual futures contract pays the other. It keeps the futures price from drifting far from spot.

Who pays when funding is positive?

Longs pay shorts. When funding is negative it is the other way around: shorts pay longs.

How often is funding paid?

It depends on the exchange and contract. Every 8 hours is common, but some use 1 or 4 hours. Only positions open at the funding time pay or receive it.

Funding rate

How it works

Questions and answers

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