Funding Rate
Also known as: funding fee, funding payment, perpetual funding, funding
What is it?
The funding rate is a recurring payment exchanged directly between long and short holders of a perpetual contract, and it is the mechanism that keeps a contract with no expiry date trading close to the spot price. It works as a feedback loop. When the perpetual trades above the index price, the funding rate turns positive and longs pay shorts; that makes holding a long more expensive and holding a short more attractive, which pushes the contract back down toward the index. When the perpetual trades below the index the sign flips and shorts pay longs.
How funding pulls a perpetual back to the index price
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1
The perpetual drifts above spot
Buying lifts the contract to $60,600 while the index sits at $60,000 - a 1% premium, and no expiry to close it.
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2
Longs pay shorts, not the venue
The premium becomes a rate: 0.01% of full notional every 8 hours. That is $5 on a $50,000 long, paid to the shorts.
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3
The premium gets squeezed out
Being long now costs money and being short earns it, so traders act - and the contract is pulled back to the index.
The exchange takes none of it - the payment moves between traders, typically every eight hours, and is charged on the full notional of the position rather than on the margin you posted. The number looks small and compounds quickly. A 0.01% rate every eight hours is 0.03% a day, or roughly 11% a year; in a strongly trending market rates of 0.1% per period appear, which annualises past 100%. On a $50,000 position, 0.01% is $5 per payment - trivial against a fast move, decisive against a thesis you intend to hold for a month.
Persistent high positive funding is also a crowding signal: it says the long side is paying heavily to stay in, which is often the state of the market just before a liquidation cascade. Your capital is at risk. See /risk-warning.
Why it matters: It is charged on your full position size every few hours, so it quietly decides whether a slow-moving leveraged thesis is worth holding at all.
Funding payment = position notional x funding rate
It rarely decides a fast trade, but on any position held for days it becomes a recurring cost that can outweigh the move you were waiting for.
Real-world example
At a 0.01% eight-hour rate, a $50,000 BTC perpetual long pays $5 per period - about $15 a day, or roughly $450 over a month of holding.
How SignalBots handles it
SignalBots crypto signals state the expected holding window, so you can judge before entering whether funding over that window is a rounding error or a real drag on the trade. See /risk-warning.
Pro tip
Multiply the current rate by three to get the daily cost, then by your expected holding days - if that total is a meaningful share of your target, the trade needs a shorter horizon.
Common pitfalls
Reading the rate as a fee on your margin rather than on the full notional, which understates the real cost by the whole leverage multiple.
Frequently asked questions
Who receives the funding payment?
The other side of the market, not the exchange. When funding is positive, longs pay shorts; when it is negative, shorts pay longs. The venue only calculates and transfers it.
How often is funding charged?
On most major venues every eight hours, so three times a day, though some charge hourly. You only pay if you are holding the position at the exact funding timestamp - opening and closing between them costs nothing in funding.
What does a very high funding rate tell me?
That one side is crowded and paying heavily to stay in. Sustained high positive funding means leveraged longs dominate, which historically often precedes sharp downside moves as those positions get liquidated.
Can I earn the funding rate instead of paying it?
Yes - taking the side that receives funding pays you each period, and some traders hedge a perpetual against spot to collect it. That still leaves you exposed to execution, basis and venue risk, and your capital is at risk. See /risk-warning.
Does spot trading have funding?
No. Funding exists only because a perpetual contract has no expiry to force it back to the index. Buying the asset on spot has no recurring holding charge of this kind.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.
