Technical Definition
Funding Rate
A periodic payment exchanged between traders holding long (buy) and short (sell) positions in perpetual futures contracts.
By Crypto University Editorial
Perpetual SwapLong PositionShort Position
✦ Key Insight
Funding rates prevent the price of a perpetual contract from drifting too far from the market price. When the contract trades above the spot price (premium), longs pay shorts to encourage selling. When it trades below (discount), shorts pay longs to encourage buying. Rates are typically paid every 8
✕ Common Misconceptions
It is often mistaken for similar sounding terms, but the technical implementation is distinct.
Detailed Explanation
Funding rates prevent the price of a perpetual contract from drifting too far from the market price. When the contract trades above the spot price (premium), longs pay shorts to encourage selling. When it trades below (discount), shorts pay longs to encourage buying. Rates are typically paid every 8 hours.
In Practice
“If the funding rate is positive (e.g., 0.01%), traders with long positions pay this small percentage of their position size to traders with short positions at the funding interval. A high positive rate signals strong bullish sentiment but also increases the cost of holding a long position.”
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