Funding Rate
A recurring payment between long and short holders that keeps a perpetual near spot price.
Also called: funding · funding payment
Written by Javier Sánchez Ros
In plain language
When a perpetual trades above spot, funding is positive and longs pay shorts. When it trades below, shorts pay longs. Payments typically occur every eight hours.
The mechanism creates an economic incentive to take the less crowded side, which pulls the contract price back toward spot.
Extreme funding is a positioning signal. Very high positive funding means the long side is crowded and leveraged, which is often where sharp liquidation cascades begin.
Worked through
A long perpetual held two weeks while funding runs at 0.03% every eight hours
- Payments per day
- 3
- Payments over 14 days
- 42
- Total cost of position value
- 1.26%
- Same cost at 10x leverage
- 12.6% of margin
Funding is quoted against the position, not against the margin, and that is where the number hides. At 10x leverage the position is ten times the margin, so a 1.26% charge on the position is a 12.6% charge on the money that is actually yours.
Two weeks in, before price has done anything at all, an eighth of the account behind the trade has been paid to the other side. The chart shows a position at breakeven. The balance does not.
The rate also tells you something. Funding runs positive because the long side is crowded and paying to stay there. Reading that as confirmation — "everyone is bullish" — has it backwards: it is a measure of how many leveraged holders are waiting to be liquidated in the same direction.
Why it matters
Funding is a real, recurring cost that compounds on held positions. At high rates it can exceed the move you were trading for.
Common mistakes
- Ignoring funding on positions held across many payment intervals.
- Reading extreme funding as confirmation rather than as crowding.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A leveraged derivative contract that tracks an asset’s price with no expiration date.
The price at which a leveraged position is forcibly closed because margin is exhausted.
Using borrowed capital to control a position larger than your account balance.
Borrowing in a low-interest currency to hold a higher-interest one, collecting the difference.
A market where assets are bought and sold for immediate delivery and full ownership.