What is Funding Rate?

The periodic payment between longs and shorts on perpetual futures that keeps the contract price tied to the spot price.

The funding rate is the mechanism that keeps a perpetual futures contract glued to the spot price of its underlying asset. Because perpetuals never expire, exchanges balance them with periodic payments — typically every eight hours — exchanged directly between traders. When the contract trades above spot (usually because longs are crowded and greedy), funding is positive and longs pay shorts; when it trades below spot, shorts pay longs. The payment nudges traders toward the underpriced side, pulling the contract back into line.

Funding matters to a trader in two ways. As a cost: a position held for days through elevated funding bleeds a real percentage of its size, quietly eroding profits or deepening losses. As information: extreme positive funding means the crowd is heavily long and leveraged — historically fragile conditions where a flush of liquidations becomes likely — while deeply negative funding marks crowded shorts and squeeze potential. Checking funding before holding a perpetual overnight is basic hygiene, like checking swap in forex.