What is a funding rate on a perpetual future
A funding rate is a periodic payment between the two sides of a perpetual future. It exists because a perpetual has no expiry to force its price back to spot, so the payment does that job instead.
Written and reviewed byCryptoTrades.to View author →Why perpetuals need funding at all
A traditional future has an expiry date. As that date approaches, the contract price and the spot price converge, because on settlement day they must be the same thing. That convergence is what keeps the contract honest.
A perpetual future has no expiry, so nothing forces it back toward spot. Funding is the replacement mechanism. When the perpetual trades above spot, the rate goes positive and longs pay shorts, which makes holding a long more expensive and holding a short more attractive until the gap closes. When the perpetual trades below spot, the reverse happens.
The mechanism is a price anchor built out of an incentive rather than a deadline.
How the number is built
Most venues calculate funding from two components: the gap between the perpetual’s mark price and an index price built from spot markets, and an interest rate component reflecting the cost of the two currencies in the pair. The premium component does nearly all the work in practice.
Two things follow from that construction:
- Funding responds to positioning, not to prediction. A crowded long book pushes the perpetual above the index, and the rate rises to charge that crowd for the privilege.
- Extreme funding is information. A rate several times its normal level says one side of the market is heavily leaned on, which is often exactly when that side gets flushed.
What it costs in practice
Take a 10,000 dollar position at a rate of 0.01 percent per eight-hour interval. Each settlement costs one dollar, three dollars a day, about 90 dollars over a month. Annualised that is roughly 11 percent.
Now leverage it. If that position is backed by 1,000 dollars of margin, the same 90 dollars is 9 percent of the money at risk in a month, before the price has done anything at all. This is the arithmetic that turns a patient leveraged position into a slow loss.
At the elevated rates that appear in a strong trend, 0.05 percent or higher per interval, the annualised figure passes 50 percent and the position becomes a race between the move you expect and the bleed you are certainly paying.
Where the venues differ
The same contract carries different funding on different venues, sometimes by a wide margin, because funding is set by positioning on that specific venue rather than by any central rate. A crowded book on one exchange does not have to be crowded on another.
That gap is worth checking before opening a position you intend to hold. Our funding rates page lines up every contract we track venue by venue, annualised to a common basis and sorted so the widest gaps sit at the top, and the funding cost calculator turns a rate into what it costs on your size.
The practical rules
Hold for hours and funding is close to irrelevant, provided you are not open across a settlement timestamp. Hold for days or weeks and funding belongs in the plan alongside the entry and the stop, because over that horizon it is routinely larger than the trading fee everyone remembers to count.
And when a rate goes to an extreme, read it as a crowding signal rather than as a cost to grimly absorb. The market is telling you where everyone is standing.
Questions people actually ask
01Who pays the funding rate?
Traders pay each other. When the rate is positive, longs pay shorts; when it is negative, shorts pay longs. The exchange transfers the amount between accounts and does not keep it, which is what separates funding from a trading fee.
02How often is funding charged?
Every eight hours on most venues, so three times a day, at fixed timestamps. Some contracts settle hourly. Because schedules differ, comparing two venues means annualising both rates first.
03Is funding charged on my margin or my position size?
On the position size. Holding a 10,000 dollar position with 1,000 dollars of margin at ten times leverage means funding is calculated on the full 10,000, so its cost measured against your own money is ten times the headline rate.
04What does a negative funding rate mean?
That shorts are paying longs, which usually happens when a market is falling and short interest is crowded. Holding a long through a negative funding period means being paid to hold it, though the price move normally dominates that income.
05Can I avoid paying funding?
Yes, by closing before the settlement timestamp, since funding is a snapshot charge rather than something that accrues continuously. Traders who hold positions for hours can sidestep it; anyone holding for days or weeks cannot.