Funding rate
A periodic payment between longs and shorts of perpetual contracts that keeps their price near spot.
The rent on a perpetual position
A perpetual contract has no expiry to pull it back to the spot price. To keep it there, exchanges charge a funding rate, usually every eight hours. When the perpetual trades above spot, the rate is positive: longs pay shorts, which discourages long positions. A very positive funding rate signals a market where many are betting on a rise with leverage.
Worked example
The cost of holding a position for a year
- Long position of $10,000, funding of 0.01% every eight hours.
- Cost: $1 per period, $3 a day.
- Over a year: 0.03% x 365 = 10.95% of the position.
A funding rate that looks tiny costs a long holder nearly 11% a year.
Common mistakes
- Leaving funding out of the return on a leveraged position held for weeks.
Questions and answers
Can funding be negative?
Yes, when the perpetual trades below spot: then shorts pay longs.
Notitia newsroom · education, not investment advice.