Funding rate
Also called: funding fee · funding
Definition
A funding rate is a periodic payment between long and short traders that keeps a perpetual futures price close to the spot price.
This entry is shown in English.
How Funding rate works
Perpetual futures never expire, so the exchange needs a mechanism that pulls their price toward the index price of the spot market. At each funding time, if the rate is positive, traders holding longs pay those holding shorts. If it is negative, shorts pay longs. The payment goes between traders, not to the exchange.
The rate is usually built from two parts: a premium component that measures how far the perp trades from the index, and an interest component. Exchanges publish the predicted rate and a countdown to the next settlement. Funding is commonly settled every 8 hours, but some exchanges and pairs use 1, 2 or 4 hours, and rates may be capped.
Funding is calculated on your position value, not on your margin, so leverage makes it matter more. You only pay or receive funding if you hold a position at the settlement moment. Persistently high positive funding shows that many traders are leveraged long, which can make the market vulnerable to sharp drops when they unwind.
Example
Suppose you hold a 30,000 USDT short on a SOL perpetual with 3,000 USDT of margin. The funding rate is +0.03% every 8 hours, so as a short you receive 30,000 × 0.03% = 9 USDT per interval, or 27 USDT a day. A trader holding the opposite 30,000 USDT long pays that same 27 USDT a day, which is almost 1% of a 3,000 USDT margin every day.
Common mistakes
- Calculating funding on margin instead of the full position value.
- Assuming funding is always settled every 8 hours on every exchange and pair.
- Reading high positive funding as a guaranteed signal that price will fall.
Learn and practise
FAQ
Is a negative funding rate bullish?
It shows that shorts are dominant and paying longs, which can fuel a short squeeze. It is a sentiment indicator, not a reliable price signal on its own.
Do I pay funding if I close before the funding time?
No. Funding applies only to positions open at the exact settlement time on your exchange.