Funding Rate
The funding rate is a periodic payment exchanged between traders holding long and short positions in perpetual futures. It nudges the contract price back towards the spot price: when the perp trades above spot, longs usually pay shorts, and when it trades below, shorts usually pay longs.
Why perps need funding
Perpetual futures never expire, so unlike regular futures nothing forces their price to meet spot at a set date. Funding fills that role. If demand for longs pushes the perp above spot, holding a long becomes costly and holding a short pays, which encourages traders to sell the perp until the gap narrows. The reverse happens when the perp trades below spot.
Payments go directly between traders, not to the exchange. Funding is usually exchanged every eight hours on many platforms, though some use hourly or other intervals. You only pay or receive it if you hold a position at the funding timestamp.
How it is calculated
Most platforms combine a premium component, measuring how far the perp trades from an index of spot prices, with a small interest-rate component. The result is applied to your position's notional value, not your margin. Say funding is 0.01 percent per eight hours and you hold a 10,000 USDC long. You pay 1 USDC each interval, about 3 USDC a day. At 0.1 percent per interval, the cost would be 30 USDC a day.
What it can tell you
Funding is a readable signal of positioning. Persistently high positive funding shows strong demand for leveraged longs, which some see as crowded or overheated. Strongly negative funding shows heavy shorting or hedging. Extreme readings have often coincided with sharp reversals, but funding can stay elevated for long periods, so it is context, not a timing tool.
Costs and risks
Over weeks, funding can quietly consume a large part of a leveraged position's margin, moving the liquidation price closer. Rates can change sharply between intervals in volatile markets. Strategies that try to earn funding, such as holding spot and shorting the perp, still carry exchange risk and liquidation risk on the short leg.
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Frequently asked questions
Does the exchange keep the funding payment?
On most platforms no. Funding is paid between long and short traders; the exchange charges separate trading fees.
Do I pay funding if I close before the timestamp?
Generally not. Funding applies only to positions open at the funding time, though some platforms calculate it continuously.
Is funding paid on my margin or position size?
On the position's notional value. With high leverage, a small funding rate can be large relative to your margin.
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