Funding Rate

The funding rate is a periodic payment exchanged between long and short holders of perpetual futures, designed to keep the perpetual's price anchored to the spot price of the underlying asset. When the perpetual trades above spot, funding is positive and longs pay shorts; when it trades below, shorts pay longs.

For example, with a funding rate of 0.01% paid every eight hours, a trader holding a $100,000 long position pays $10 to shorts at each funding interval. Over a month of persistently positive funding, that cost compounds into a meaningful drag on the position, independent of price movement.

Because perpetuals never expire, funding is the mechanism that replaces settlement: it makes holding the crowded side expensive, nudging the contract price back toward spot. Traders also read funding as a sentiment gauge — persistently high positive funding suggests aggressive, leveraged long positioning, which often precedes sharp corrections when those longs unwind. A common misconception is that the exchange collects funding as a fee; funding flows between traders on opposite sides, with the exchange merely facilitating the transfer (though it charges its own trading fees separately).