What a perpetual future is
A perpetual future is a derivative contract on an asset such as bitcoin. It has no expiry date. A trader can hold a long or a short position for as long as the margin covers it.
A dated future ends on a fixed day and its price converges to the spot price on that day. A perpetual has no such day. Without an expiry, the contract needs another tool to keep its price close to the spot price. That tool is the funding rate.
The contract price can drift away from the spot price when many traders want the same side. If most traders want to be long, the contract trades above spot. If most want to be short, it trades below spot.
Funding makes this drift costly. It pushes traders on the crowded side to pay traders on the other side. In this way, the funding rate links the perpetual price to the spot price without an expiry date.
Funding is a mechanism of the contract. It is not a fee that the exchange keeps.
How funding payments work
At fixed times, the exchange calculates the funding rate and applies it to every open position. The payment equals the position size (notional value) times the funding rate.
The payment goes between traders. When the rate is positive, long positions pay short positions. When the rate is negative, short positions pay long positions. The exchange only moves the money between the two sides.
A trader pays or receives funding only if the position is open at the time of the calculation. A position closed one minute before the calculation pays nothing. A position opened one minute before it pays the full amount for that period.
Funding is separate from trading fees and from profit and loss. It changes the account balance on top of those items. For a leveraged position, a rate that looks small can still add up over many periods.
- Positive rate: long positions pay short positions.
- Negative rate: short positions pay long positions.
- Payment = position notional value times the rate.
Interval, per-period rate and annualised rate
Each venue sets an interval between two funding calculations. Common intervals are 8 hours and 1 hour. Some venues or some contracts use other values. The funding table in the app shows the interval next to the rates.
A published rate applies to one interval. A rate on a 1-hour contract and the same number on an 8-hour contract do not cost the same. The 1-hour contract pays that rate eight times in the time the 8-hour contract pays it once.
To compare rates, convert them to one common period. The simple method is to multiply the rate by the number of intervals in a year. An 8-hour contract has three intervals per day. A 1-hour contract has twenty-four.
This gives an annualised rate. It is a unit conversion, not a forecast. It assumes that the rate stays the same for the whole year, and real funding rates change from one interval to the next. Use the annualised number to compare, not to plan.
Annualised figures often use simple multiplication and ignore compounding. Check which method a source uses before you compare two tables.
Never compare raw rates from contracts with different intervals. Convert first.
What sets the rate
Most venues build the rate from two parts. The first part is an interest component. It reflects the difference in borrowing cost between the quote currency and the base asset. The second part is a premium component. It reflects how far the contract price sits from an index price of the spot market.
When the contract trades above the index, the premium is positive and the rate rises. When it trades below, the premium is negative and the rate falls. The interest part often stays fixed or changes slowly, so the premium drives most of the movement.
Many venues also cap the rate and clamp the premium. A cap limits how large the rate can become. If a rate sits at a cap, the true pressure may be larger than the number shows.
The exact formula is public for each venue, and the formulas differ. Read the contract specification of a venue before you assume that two rates mean the same thing.
Differences between venues
The same asset can show different funding rates on different venues at the same time. Several factors explain this.
Each venue has its own user base. A venue with more leveraged retail traders may show a different balance of longs and shorts than a venue with mostly professional desks.
Contract design also differs. Some contracts are margined in a stablecoin and some in the base coin. The index price, the cap, the clamp and the interval can all be different. The settlement time can differ too, so two rates may not describe the same hour.
Because of this, look at the spread between venues as data. A venue far from the others may reflect local positioning, a different formula or a stale value. Check the timestamp and the interval before you draw any conclusion.
The table below lists dated funding rates by exchange from the app. Read each row with its interval and its time stamp.
Funding versus basis
Basis is the gap between a dated futures price and the spot price. It shows the price of holding a futures position until a known expiry date. Traders often express it as an annualised percentage.
Funding is the cost of holding a perpetual position, charged period by period. There is no expiry date, so the cost is not locked in. It resets at every interval.
Both measures reflect the price of leverage and the demand for one side of the market. They differ in time structure. Basis embeds a view of the full period until expiry. Funding shows only the current period.
This difference matters for how you compare them. A high funding rate can fall back within a few intervals. A high basis on a dated contract is locked into the contract price until expiry. When both point in the same direction, they describe the same kind of demand through two instruments.
Funding prices leverage one period at a time. Basis prices it to a known end date.
Extremes as a description of positioning cost
A high positive rate says that holding a long position is costly right now. Long traders pay a large amount for each interval. The market has more demand for long exposure than for short exposure at the current contract price.
A low or negative rate says the opposite. Short traders pay, or long traders are paid. This shows demand for short exposure, or low demand for long exposure.
Read an extreme as a statement about cost and crowding. Do not read it as a signal about the next price move. Funding rates can stay extreme for a long time while price keeps moving in the same direction. They can also normalise with no large price move.
Funding gains meaning when you pair it with other data. Open interest shows how large the leveraged positions are. Liquidation data shows where forced closings happened. A high rate with growing open interest describes a larger and more costly crowd. A high rate with falling open interest describes a crowd that is leaving.
Common mistakes when reading funding
The first mistake is to compare raw rates across intervals. The second is to use one venue as if it were the whole market. A single venue shows its own users only.
The third mistake is to ignore the sign convention. Check on each venue which side pays when the rate is positive. Most venues use the convention described above, but you should confirm it in the contract specification.
The fourth mistake is to treat an annualised number as a promised return. It is a conversion of one period’s rate. A strategy that earns funding also carries price risk, margin risk and exchange risk.
The last mistake is to use funding as a timer. A rate does not tell you when a crowded position will end. It tells you what the crowd pays today.
A step-by-step way to read a funding table
A funding table lists many contracts and many venues in one view. A fixed routine keeps you from reading the numbers in the wrong order.
Start with the structure of the table, not with the largest number. Find the column that shows the interval and the column that shows the time stamp. Then read the sign of each rate and decide which side pays.
Next, compare venues for the same asset. Look for the group of rates that sit close together and for any rate that stands apart. Ask whether the outlier has a different interval, a cap or an old time stamp.
Last, move from the table to the context. Open the open interest and liquidation pages for the same asset. The question to answer is simple: how large is the crowd, how much does it pay and where would forced closings occur?
- Find the interval and the time stamp.
- Read the sign and decide who pays.
- Compare the same asset across venues.
- Open the open interest and liquidation views.
Checklist
- Check the interval before you compare two rates.
- Convert rates to one period, such as annualised.
- Confirm which side pays when the rate is positive.
- Compare several venues, not only one.
- Pair funding with open interest and liquidation data.
Questions
What does a positive funding rate mean?
On most venues, a positive rate means long positions pay short positions at each funding time. It shows that demand for long exposure is stronger at the current contract price. It describes the cost of positioning today. It does not state what the price will do next.
How do I annualise a funding rate?
Multiply the rate by the number of funding intervals in a year. An 8-hour contract has three intervals per day, and a 1-hour contract has twenty-four. The result is a unit conversion. It assumes the rate stays constant, which real funding rates do not do.
Why are funding rates different on each exchange?
Each venue has its own traders, formula, index price, cap and interval. These choices change the rate even for the same asset at the same time. A gap between venues can also come from a stale value, so check the time stamp.
Does a very high funding rate predict a reversal?
No. A very high rate describes a costly and crowded long side. Rates can stay high for long periods while price continues in the same direction. Use the reading as context, together with open interest and liquidation data, and not as a trade signal.