Funding rate explained
A perpetual future has no expiry date, so something has to keep its price glued to the real spot price. That something is the funding rate — a small payment swapped between longs and shorts every few hours.
The problem perpetuals solve
A traditional futures contract expires on a set date, which pulls its price toward spot as expiry nears. Perpetual futures ("perps") never expire — so traders could push the contract far from the underlying price. The funding rate is the mechanism that stops that drift.
How funding works
At regular intervals (commonly every 8 hours on real venues), traders on one side pay traders on the other:
- Positive funding — the perp is trading above spot, so demand to be long is high. Longs pay shorts. This nudges longs to close and discourages new ones, pulling the price back down toward spot.
- Negative funding — the perp is trading below spot, so shorts are crowded. Shorts pay longs. This pressures the price back up.
The payment is a percentage of your position's value, not of your margin — so with leverage it can be a meaningful, recurring cost or income.
Reading funding as a sentiment gauge
Because funding reflects which side is crowded, it doubles as a positioning signal:
- Strongly positive funding = lots of leveraged longs. The market is greedy and potentially over-extended — long squeezes (sharp drops that liquidate longs) become more likely.
- Strongly negative funding = crowded shorts. A short squeeze (sharp rally) becomes more likely.
Funding near zero means the two sides are balanced and the perp is tracking spot closely.
Funding and your costs
If you hold a leveraged position across a funding timestamp, you'll pay or receive funding. Holding a long through repeated positive funding slowly bleeds your account even if price stays flat — worth factoring into any multi-day position.