What is funding rate in perpetual futures
- Perpetual futures have no expiration date, so they need another way to stay close to the spot price.
- The funding rate is a periodic payment between long and short traders that does this job.
- A positive funding rate means longs pay shorts; a negative rate means shorts pay longs.
- Funding rate is a real, recurring cost (or income) that adds up over time if you hold a position.
Perpetual futures ("perps") are the most heavily traded type of crypto derivative, and the funding rate is the mechanism that makes them work — quietly, in the background, every few hours.
The problem it solves
Traditional futures contracts have an expiration date, at which point they settle against the actual spot price — that built-in settlement keeps the futures price anchored to reality. Perpetual futures deliberately have no expiration date, which is convenient for traders but removes that natural anchor. Without something else in place, a perpetual contract's price could drift arbitrarily far from the actual spot market.
How funding rate fixes this
The funding rate is a periodic payment exchanged directly between traders holding long and short positions, typically every 8 hours (though this varies by exchange). It's calculated based on the difference between the perpetual contract's price and the underlying spot price.
- Positive funding rate: the perpetual is trading above spot, so long position holders pay short position holders. This creates an incentive to open shorts (or close longs), pushing the perpetual price back down toward spot.
- Negative funding rate: the perpetual is trading below spot, so short position holders pay long position holders — the reverse incentive, pushing the price back up.
This payment doesn't go to the exchange — it's a direct transfer between traders on opposite sides of the market, funded by whichever side is currently pushing the price away from spot.
What this means for you as a trader
If you hold a perpetual futures position through a funding payment, you'll either pay or receive that payment based on your position direction and the current rate. On a small, short-term trade this is often negligible. But if you hold a position for days or weeks, accumulated funding payments can meaningfully affect your overall return — sometimes more than you'd expect from a "small" recurring fee.
A consistently strongly positive funding rate can also be read as a signal that the market is heavily leveraged long — a lot of traders betting on the price rising — which some traders watch as a sentiment indicator, alongside tools like the Fear & Greed Index on our terminal page.
A simplified example
Say the funding rate is +0.01% and you're holding a $10,000 long position at the funding timestamp. You'd pay $1 to short position holders at that interval. It sounds small, but at three funding intervals a day, that's roughly $3/day — about $90 over a month, on a position that hasn't moved in price at all.
Key takeaway
Funding rate isn't a fee charged by the exchange — it's a market mechanism that keeps perpetual futures prices anchored to spot, funded by traders on the "expensive" side of the market paying traders on the "cheap" side. If you plan to hold a leveraged position for more than a short window, checking the current funding rate on your exchange first is worth the thirty seconds it takes.