Funding Rate

A funding rate is a periodic payment exchanged between long and short holders of a perpetual futures contract to keep its price near the underlying spot price.

How it works

A funding rate is the periodic payment exchanged directly between holders of long and short positions in a perpetual futures contract. Because a perpetual has no expiry date to force convergence with spot, the funding rate serves as the mechanism that keeps the contract price anchored to the price of the underlying asset. When the perpetual trades above spot, the rate is positive and longs pay shorts; when it trades below spot, the rate is negative and shorts pay longs.

Each venue calculates the rate from two components: a premium or discount measuring the gap between the perpetual price and an index price, plus a fixed interest rate component. Payments typically settle at set intervals, often every eight hours, and are applied to a trader's position size rather than charged by the exchange. The term also appears in traditional finance to describe an institution's cost of raising capital, a separate meaning.

Why it matters

For an institutional reader, the funding rate is both a cost input for holding leveraged positions and a signal of directional positioning across a market. Persistent positive funding indicates crowded long exposure, while negative funding indicates the reverse, and the rate feeds directly into the carry of cash-and-carry and basis trades. Measuring it consistently across venues requires reliable index pricing, which is covered in Perp Funding Rate: The Fee That Anchors Crypto.

Related terms

• Perpetual futures
• Basis
• Index price
• Mark price
• Open interest

Frequently asked questions

Who pays the funding rate?

Holders on one side of a perpetual contract pay holders on the other. When the rate is positive, longs pay shorts; when negative, shorts pay longs. The exchange facilitates the transfer rather than collecting it.

How often is the funding rate paid?

It settles at fixed intervals set by each venue, commonly every eight hours, though some platforms use hourly or other schedules. Payment applies to a position held at the settlement time.

Why does a perpetual contract need a funding rate?

A perpetual has no expiry date, so there is no settlement that forces its price to converge with spot. The funding rate creates an ongoing incentive that keeps the contract price near the underlying asset price.

Allium provides onchain data infrastructure. Companies named in this article may be Allium customers, prospects or commercial counterparties. The authors and other Allium personnel may hold positions in the assets discussed. This article is informational only and is not investment, legal or tax advice. Data and information last reviewed: October 19, 2026.