Definition
The funding rate is a periodic payment exchanged between long and short traders of a perpetual futures contract, set so that the contract price stays close to the spot price.
How it works
When the funding rate is positive, traders holding long positions pay those holding short positions. When it is negative, shorts pay longs. A positive rate usually appears when the contract trades above the spot index because more traders want to be long; the payment makes longs more expensive to hold and shorts more attractive, which tends to narrow the gap.
Each payment is calculated as: funding payment = position value × funding rate. The position value is the full size, not the margin, so with leverage the payment is large relative to the money deposited. Many exchanges settle funding every 8 hours, but others use 1-hour, 4-hour or other intervals, and the formula behind the rate, usually built from the premium between the contract and the index, also differs. You pay or receive funding only if you hold a position at the funding time.
Funding is paid between traders, not charged by the exchange, so it is separate from trading fees. A rate that stays high suggests that many traders are positioned on one side, but it does not tell you when the price will turn. Over many intervals, even a small rate adds up to a meaningful cost or income.
Example (hypothetical numbers)
Suppose you hold a long perpetual position worth $20,000 with $2,000 of margin (10x), and the funding rate is +0.01% every 8 hours.
Each payment = $20,000 × 0.01% = $2, paid to shorts; with 3 intervals a day, that is $6 per day.
Over 30 days at the same rate: $6 × 30 = $180, which is 9% of the $2,000 margin.
If the rate were −0.01% instead, the long would receive $2 per interval: the sign decides who pays, and the position value, not the margin, decides how much.
Common mistakes
- Thinking the funding rate is a fee the exchange keeps.
- Calculating funding on the margin instead of the full position value.
- Assuming every exchange uses the same 8-hour interval.
- Reading a high positive rate as a guarantee that the price will fall.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.