Funding Rate
A periodic payment between long and short perpetual holders that keeps the perp price anchored to spot.
When a perpetual contract trades above spot, longs pay shorts; when it trades below spot, shorts pay longs. The size and frequency of this payment vary by venue (typically hourly or every 8 hours). Persistent funding flips are a leading indicator of crowded positioning.
Practical Example & Calculation
Hypothetical scenario
Hypothetical numbers: a trader holds a $40,000 notional BTC perpetual long. The venue settles funding every eight hours, and the displayed funding rate for the next interval is +0.0125%. Positive funding means longs pay shorts. Funding is applied to position notional, not to the trader’s posted collateral. If the trader used $4,000 of collateral for 10× leverage, the charge is therefore still based on $40,000. Assume the position remains exactly $40,000 at all three settlements in one day and the rate does not change. Real venues recalculate the rate and notional, so this fixed-rate example isolates the funding calculation.
Formula
Funding payment per interval = position notional × funding rate. Daily funding = payment per interval × number of intervals. Funding return on collateral = daily funding ÷ collateral.
Calculation
$40,000 × 0.0125% = $40,000 × 0.000125 = $5.00 paid per eight-hour interval. Three intervals produce $5.00 × 3 = $15.00 paid in one day. Relative to $4,000 collateral, $15 ÷ $4,000 = 0.00375, or 0.375% of collateral for that day. A simple annualized indication, if the unchanged rate persisted, is 0.0125% × 3 × 365 = 13.6875% of notional. That annualization is not a forecast because funding frequently changes sign and magnitude.
What the result means
The position can be profitable on price while still losing $15 to funding, or unprofitable on price while receiving funding if the rate is negative and the trader is on the paid side. For a short under the same positive rate, the direction reverses: the short receives $5 per interval, before fees. To compare venues, normalize rates to the same interval; an hourly 0.002% rate corresponds to 0.016% over eight hours by simple multiplication. Also check each venue’s premium index, caps, settlement timestamps, and whether payment uses current mark-value notional. Funding is a transfer between opposing positions rather than a guaranteed protocol fee, although venue rules may handle imbalances differently. The practical decision is to include expected holding time: a brief trade may face one settlement, while a multi-day leveraged position compounds repeated payments and changing notional.