Trading
Funding Rate
A periodic payment exchanged between long and short traders in perpetual futures contracts to keep the contract price aligned with the spot market price.
Last updated: January 5, 2025
What is Funding Rate?
The funding rate is a periodic fee exchanged between traders holding long and short positions in perpetual futures contracts. It’s a mechanism that keeps perpetual contract prices close to the underlying spot market price.
How Funding Rates Work
The Mechanism
- If perpetual price > spot price: Longs pay shorts
- If perpetual price < spot price: Shorts pay longs
- Payments occur at fixed intervals (usually every 8 hours)
Why It Exists
Perpetual contracts have no expiry date, so funding rates:
- Prevent large price deviations from spot
- Balance long/short positioning
- Create arbitrage opportunities
Understanding Funding Rate Values
Positive Funding Rate
- More traders are long
- Longs pay shorts
- Market sentiment: Bullish
Negative Funding Rate
- More traders are short
- Shorts pay longs
- Market sentiment: Bearish
Typical Ranges
| Rate | Interpretation |
|---|---|
| 0.01% | Normal, neutral |
| 0.05-0.1% | Elevated, bullish |
| -0.01% | Normal, neutral |
| -0.05% | Elevated, bearish |
| Above 0.1% or below -0.1% | Extreme, potential reversal |
Funding Rate Example
Scenario:
- Position: Long 1 BTC at $50,000
- Funding rate: 0.05% (positive)
- Funding interval: 8 hours
Calculation:
Funding payment = Position Value × Funding Rate
Funding payment = $50,000 × 0.0005 = $25
Every 8 hours, you pay $25 to short holders
Daily cost: $75 (3 payments)Trading With Funding Rates
As Signals
- Extremely positive: Market may be overheated
- Extremely negative: Market may be oversold
- Use as contrarian indicator
Funding Rate Arbitrage
- Short perpetual with positive funding
- Long spot to hedge
- Collect funding payments
- Risk-free yield (minus fees)
Position Management
- Account for funding in trade calculations
- Avoid holding during extreme rates
- Consider funding when choosing direction
Funding Rate by Exchange
| Exchange | Funding Interval | Settlement |
|---|---|---|
| Binance | 8 hours | 00:00, 08:00, 16:00 UTC |
| Bybit | 8 hours | 00:00, 08:00, 16:00 UTC |
| OKX | 8 hours | 00:00, 08:00, 16:00 UTC |
Key Takeaways
- Funding rates keep perpetuals aligned with spot
- Positive = longs pay shorts
- Negative = shorts pay longs
- Extreme rates can signal reversals
- Factor funding into position costs
Ready to Start Trading?
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