Funding rates: the price of holding the crowded side
Funding is the mechanism that replaces expiry on a perpetual future. It is not a fee the venue collects; it is a payment between traders, and understanding which direction it flows is most of what you need to read the market.
- Live product data
- Self-custodial
- Human confirmed
Who pays whom
If the perp trades above the oracle price, the market is net long and longs pay shorts. If it trades below, shorts pay longs. The payment is proportional to position size, so it scales with your exposure rather than with your margin. A trader on the paying side loses a little continuously; a trader on the receiving side is paid to hold.
How often it settles
Settlement cadence is a venue parameter, commonly hourly or every eight hours. That matters more than the headline rate: a rate quoted per eight hours and a rate quoted per hour differ by a factor of eight, and comparison sites routinely mix the two. Always check the period a rate is quoted over before comparing venues.
Reading it as a signal
Persistently high positive funding means leveraged longs are crowded and paying to stay there, which is a real cost that eventually forces some of them out. That is the setup behind a long squeeze. Negative funding is the mirror image. Funding is not a prediction, but it is one of the few sentiment measures denominated in money actually changing hands.
- Positive funding: perp above spot, longs pay shorts
- Negative funding: perp below spot, shorts pay longs
- The rate is charged on notional, not on margin
- Extreme funding tends to mean-revert, because paying it is what forces the unwind
Why the same asset funds differently on two venues
Funding is local to a venue: it is set by the book and the participants of that venue. The same asset can pay one rate on one venue and a different one elsewhere at the same moment, which is the basis of the funding-arbitrage trade and a good reason to compare before opening rather than after.
How the number is actually computed
Most venues build the rate from two parts. A premium component measures how far the perp is trading from the index, usually as a time-averaged gap sampled through the period rather than a single reading at the end. An interest component adds a small fixed term representing the cost of holding the quote currency against the base. The sum is then clamped to a cap, which is what stops a dislocated book from producing an absurd payment. The cap and the sampling method are venue parameters, so the same market conditions can produce different rates in different places.
Frequently asked questions
- Is funding a fee I pay to the exchange?
- No. It moves between traders. The venue takes its own trading fee separately, which is charged per fill rather than per funding period.
- Can funding alone wipe out a position?
- It can liquidate one indirectly. Funding is deducted from margin, so a position running at high leverage against sustained adverse funding loses margin even when the price does not move against it, and eventually reaches its maintenance level.
- How do I avoid paying funding?
- Take the other side, or do not hold through the settlement. Funding is charged at settlement times rather than continuously accrued to your position, so a trade opened and closed between two settlements pays none of it.
- Do stock and commodity perps have funding too?
- Yes, and the mechanism is identical. It is the price-anchoring device for the instrument, not a property of the asset class, so an NVDA or gold perp funds for exactly the same reason a BTC perp does.
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Perpetual futures are leveraged instruments and can lose more than your initial margin. Nothing on this page is investment advice.