Funding rate explained: what it is and who pays
Funding is a small regular payment between holders of longs and shorts on perpetual futures. It keeps the contract price close to the coin price, and along the way it shows which side the crowd is on. Here is how it works, how to calculate and annualise it, and how traders use it.
All six screeners once you sign up · no bank card
Why funding exists
An ordinary future converges with the asset price at expiry: at that moment the contract turns into the coin itself or into cash at its price. A perpetual has no expiry, and without an extra mechanism its price could drift anywhere away from spot. Funding is that mechanism.
When the contract trades above spot, holding a long costs money and holding a short pays. Some traders close longs or open shorts, and the contract price is pulled back down towards spot. When the contract trades below spot, it works the other way.
Who pays whom
| Rate | Who pays | Who receives | When it usually happens |
|---|---|---|---|
| Positive | Longs | Shorts | Most of the time: crypto has more people buying with leverage |
| Negative | Shorts | Longs | In a sell-off or panic, when everyone is short |
| Near zero | Hardly anyone | - | A calm market, longs and shorts in balance |
Traders pay each other, not the exchange. The exchange only calculates and transfers. So funding is not a fee: with a positive rate the short receives it.
How the rate is calculated
Formulas differ between exchanges, but there are two parts at the core. The first is the premium: how far the contract price is from the coin's index price (an average across several spot exchanges). The second is a base interest component, around 0.01% per 8 hours on many exchanges. The final rate is usually capped from above and below so it cannot become extreme.
How often and how much
Most often it settles every 8 hours, three times a day, usually at 00:00, 08:00 and 16:00 UTC. On some exchanges and coins every 4 hours or every hour. Payment = position size × rate. What counts is the position size, not your margin: at 10x leverage you pay funding on ten times the money you put in.
| Rate +0.01% per 8 hours, long | −$1.00 per period |
| The same rate, short | +$1.00 per period |
| Rate +0.1% per 8 hours, long over a day | −$30.00 |
| Margin at 10x leverage | $1,000 |
| Funding over a day relative to margin | −3% |
With a high rate and high leverage funding eats a noticeable share of margin within days.
Annualising the rate
| +0.01% per 8 hours | ≈ 10.95% a year |
| +0.03% per 8 hours | ≈ 32.85% a year |
| +0.1% per 8 hours | ≈ 109.5% a year |
| +0.01% per hour | ≈ 87.6% a year |
Annual = rate per period × periods per year (3 × 365 for 8 hours, 24 × 365 for hourly). Handy for comparison, but not a promise: the rate changes every period.
The last line shows a common trap: "only" 0.01% settled hourly is eight times as expensive as the same number settled every 8 hours.
What funding says about the market
- A high positive rate - lots of leveraged longs. The market is overheated, and a sharp drop can trigger a liquidation cascade.
- A deeply negative rate - the crowd is short. A short squeeze is possible: a fast rise that forces shorts to close.
- Open interest rising together with the rate - new leveraged money is entering, not just old positions changing hands.
- Different rates for the same coin on different exchanges - an opening for funding rate arbitrage.
How traders use funding
- Collecting funding with a hedge. Buy the coin on spot and short the perpetual for the same amount: the price cancels out, and with a positive rate the short earns funding. Covered in the spot-futures arbitrage article.
- Cross-exchange rate arbitrage. Short where the rate is higher, long where it is lower.
- A filter for ordinary trading. Before holding a leveraged position for long, check what the funding will cost.
Common mistakes
- Comparing rates with different settlement periods without converting them to one period.
- Assuming funding accrues continuously. It is paid only to whoever holds the position at settlement.
- Forgetting funding on long holds: 0.05% per 8 hours is 1.5% over 10 days.
- Counting funding against margin instead of position size.
Every coin's rate across 16 exchanges, normalised to one period, with open interest moves - on the funding page.
Glossary
- Perpetual future - a contract with no expiry whose price is held near spot by funding.
- Premium - how far the contract price deviates from the index price.
- Index price - the average coin price across several spot exchanges.
- Settlement period - the interval between funding payments.
- Open interest - the total of all open positions in a contract.
Funding rate FAQ
Who pays funding - longs or shorts?
It depends on the sign of the rate. With a positive rate longs pay shorts; with a negative one shorts pay longs. Traders pay each other; the exchange only transfers.
How often is funding charged?
Most often every 8 hours; on some exchanges and coins every 4 hours or every hour. The exchange shows the next settlement time next to the rate.
Do I pay funding if I hold for less than 8 hours?
Only if the position is open at settlement. Open and close between two settlements and no funding is charged.
Is funding charged on margin or on the position?
On the position size. At 10x leverage on $1,000 margin, funding is charged on $10,000.
What rate counts as high?
The base level on many exchanges is about 0.01% per 8 hours. Rates above 0.05-0.1% per 8 hours point to a strong tilt towards longs.
Can I earn funding without price risk?
Yes, by hedging: short the perpetual against spot coins or against a long on another exchange. Price risk mostly goes away, but liquidation, rate changes and fees remain.
Free access after sign-up with delayed data.