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Funding Rate

The funding rate is a periodic payment exchanged between long and short traders on perpetual futures, designed to keep the contract's price close to the underlying spot price.

Also called: Funding fee · Perpetual funding · Perp funding rate

Perpetual futures have no expiry date, so unlike dated futures they cannot rely on settlement to pull their price back to spot. The funding rate does that job: when the perpetual trades above the spot index, longs pay shorts, which makes holding longs more expensive and encourages the gap to close. It is also widely read as a gauge of leveraged positioning and market sentiment.

How it works

Each exchange publishes its own formula, but most combine:

  • a premium component, based on how far the perpetual price is from the spot index, and
  • on some venues, a small interest component.

The rate is usually capped and applied at fixed times, commonly every eight hours.

Funding payment = position notional value × funding rate

Notional value is the full position size, not the margin, so leverage multiplies the cost relative to your capital.

Example

You hold a $10,000 long BTC perpetual position, using $1,000 of margin (10x).

  • Funding rate: +0.01% per 8 hours → you pay 10,000 × 0.0001 = $1 each interval, about $3 per day.
  • If the rate rises to +0.05% → $5 each interval, $15 per day, or 1.5% of your margin daily.
  • Held for 10 days at that level, funding would cost about $150, 15% of the margin, before any price move.

If the rate turns −0.02%, the long receives $2 per interval from shorts.

Common mistakes

  • Ignoring funding on longer holds. Small per-interval rates add up over days and weeks, especially with high leverage.
  • Calculating it on margin instead of notional. The payment applies to the full position size.
  • Treating extreme funding as a timing signal. High positive funding shows crowded longs, which can precede a flush, but rates can stay elevated while price keeps rising.
  • Forgetting it can flip. A position that earns funding today may pay it tomorrow.
  • Overlooking liquidation risk. Funding payments reduce margin and can bring a position closer to a margin call or liquidation.

To combine positioning with crowd mood, see crypto sentiment analysis on X and how to read a Bitcoin chart.

Educational content — not financial advice.

Updated

Frequently asked questions

Who pays the funding rate?

When the rate is positive, longs pay shorts; when it is negative, shorts pay longs. The exchange does not keep it, it passes between traders.

How often is funding paid?

On many major exchanges, every eight hours, but some contracts and venues use other intervals. You only pay or receive it if you hold a position at the funding time.

What does a high funding rate mean?

A high positive rate means perpetual prices trade above spot and longs are paying a premium to stay in, which often reflects crowded bullish positioning.