What is funding rate?

A recurring payment exchanged between the long and short sides of a perpetual futures contract that pulls its price back toward spot.

When the perpetual trades above spot, longs pay shorts. When it trades below, shorts pay longs. The exchange publishes the rate and the settlement interval in the contract specification for each market, and the payment moves between traders rather than to the venue, so it never appears on a fee schedule.

That makes it easy to overlook and expensive to ignore: a position held through several settlement periods pays or receives at each one. Check the current and historical rate on the contract page before opening a position you plan to hold.

How it works

A perpetuals contract has no expiry, so it lacks the mechanism that pulls a dated future toward spot as delivery approaches. Funding replaces it.

The rate is computed from two components: an interest component set by the venue, and a premium component measuring how far the contract's mark price has traded from the index price over the interval. If the contract is persistently rich, the premium term pushes the rate positive and longs pay shorts, which makes holding a long more expensive and encourages the arbitrage that closes the gap.

Three details differ by venue and are published per market in each exchange's contract specification:

• The interval. Settlement commonly happens several times a day, and the interval is not the same everywhere.
• The cap. Venues bound how extreme the rate can get.
• The basis of the calculation. Which index is used and how the premium is sampled.

Payment happens only if you hold the position at the settlement timestamp. Opening and closing within an interval means you pay and receive nothing, which is why the cost is invisible to short-term traders and material to anyone holding.

The rate is also read as a sentiment measure. Persistently positive funding means the market is paying to be long, which is a statement about positioning rather than about direction.

Example

Illustrative arithmetic. You hold a $10,000 long position and funding is 0.01% per interval with three settlements a day. Each settlement costs $1, so $3 a day and roughly $90 over a month. Now suppose funding runs at 0.10% per interval during a crowded period: that is $10 per settlement, $30 a day, and $900 a month on the same $10,000 position. The position size did not change; the carrying cost went up tenfold.

Why it matters when you buy

Funding is a cost of holding leveraged exposure that does not exist when you simply buy the asset, and over weeks it can exceed every trading fee you paid. Derivatives are also restricted or unavailable to retail traders in many jurisdictions, so check what is permitted where you live at the jurisdiction pages and compare spot costs at the fee comparison.

Related terms

perpetuals — the contract funding exists for, mark price — one input to the rate, index price — the spot reference, basis — the gap funding closes, leverage — what magnifies the cost, liquidation — what carrying cost can trigger.

Questions

Does the exchange keep the funding payment?

No. It moves between traders on opposite sides of the contract. That is why it never appears on a fee schedule and why many traders never notice paying it.

How often is funding charged?

It varies by venue and by market, with several settlements a day being common. The interval and the cap are stated in each exchange's contract specification for that market.

Can I avoid funding entirely?

Yes, by buying the asset on the spot market instead. Spot has no funding, no liquidation, and no expiry, at the cost of no leverage.