The funding rate is the mechanism that keeps perpetual futures — contracts with no expiry — trading close to the price of the underlying asset. At fixed intervals (commonly every eight hours, though some venues settle hourly) holders on one side of the market pay holders on the other.
Which side pays
- Positive funding: the perpetual is trading above the spot or index price. Longs pay shorts. Holding a long costs money; holding a short earns it.
- Negative funding: the perpetual is trading below spot. Shorts pay longs.
The payment is a percentage of position size, set mainly by the gap between the contract price and the index price, with an interest-rate component on many venues. Payments pass between traders; the exchange itself does not collect them.
Why it exists
A traditional futures contract converges on spot at expiry. A perpetual has no expiry, so without funding its price could drift away from the asset indefinitely. Funding makes that drift costly: the further the contract trades above spot, the more longs pay, which discourages new longs and pulls the price back.
What traders read into it
- Crowding. Persistently high positive funding describes a market where demand to be long is outrunning demand to be short, and longs are paying for it.
- Stress. Deeply negative funding describes a market leaning heavily short.
- Annualised cost. A funding rate of 0.01% every eight hours is roughly 11% a year for someone holding the position throughout — a real cost that is easy to miss in a single reading.
Extreme funding has at times preceded sharp moves against the crowded side, but it is not a timing signal: funding can stay elevated for weeks.
Related measures
Funding is usually read together with open interest. Rising open interest with rising positive funding describes new leveraged longs arriving; falling open interest with funding normalising describes positions being closed.
In MoonWire analysis
Our articles report funding and derivatives positioning as reported by our sources and data desks, as context on how the market is positioned, never as a call on direction.