A funding rate is the periodic payment that perpetual futures traders exchange with each other to keep a contract's price anchored to the spot price of the underlying asset. Unlike a traditional futures contract, a perpetual never expires and never settles against the underlying, so exchanges built funding directly into the product as a self-correcting mechanism. Every trader who holds a position across a funding interval either pays or receives this amount, and knowing which side of that payment you sit on is one of the first things any perpetuals trader has to understand.
A dated futures contract converges to the spot price on its own: as expiry approaches, arbitrage between the futures and the underlying asset closes any gap, because the contract must settle at or near the index price on a fixed date. A perpetual has no such date. Left alone, a perpetual's price could drift away from spot indefinitely, especially during one-sided demand from either longs or shorts. Funding replaces the pull of expiry with a recurring cash transfer between the two sides of the market, applying continuous pressure that keeps the contract's price close to its index.
The direction of the payment follows the relationship between the perpetual's price and its index (spot) price. When the perpetual trades above the index, funding is positive and longs pay shorts ; the cost of holding a long position discourages further buying and rewards those willing to be short. When the perpetual trades below the index, funding flips negative and shorts pay longs . The payment always moves trader to trader — the exchange is not a party to it, aside from collecting its own separate trading fees. That distinction matters when comparing venues: a low headline trading fee can still leave a trader worse off if the same venue's funding runs persistently against their position.
Most funding formulas combine two pieces. The first is a premium component , the measured gap between the perpetual's mark price and its index price over the interval — the bigger the gap, the larger the correcting payment. The second is a smaller interest-rate component , reflecting the cost difference between borrowing the quote asset and the base asset; on most venues this piece is modest and comparatively stable. The two are combined and frequently clamped within a band, so a single interval cannot move the rate by an extreme amount in one step, even during a fast market.
Funding technically accrues continuously, but exchanges settle it at fixed intervals. The earliest derivatives exchanges standardized on an eight-hour cycle, and that convention is still common. Competition among venues has since pushed many toward shorter cadences — four hours, or one hour — which smooths the size of each individual payment and keeps a position's carrying cost from jumping in large steps. Canborsa settles funding hourly across all of its listed markets, so a position's cost accrues continuously through the day, which matters for anyone doing the holding-cost arithmetic covered in the holding cost guide .
Because funding is a direct measure of which side is willing to pay to stay in a position, traders use it as a positioning gauge on top of price. Funding that stays persistently positive across a broad set of assets points to a market that is broadly long and paying up to stay that way; a sharp move to deeply negative funding usually marks a market that has flipped defensively short. Extremes in either direction are watched less as an entry trigger on their own and more as a sign that a market is crowded — the same idea covered from a scanning-tool angle in the funding rate heatmap guide and applied to a single asset in the BTC funding rate guide .
A raw per-interval funding number is not directly comparable across venues that settle on different schedules. A rate of 0.01% charged every hour and a rate of 0.08% charged every eight hours work out to the same daily cost, but the two figures look very different sitting side by side. The standard fix is to annualize: multiply the per-interval rate by the number of intervals in a year — 8,760 for hourly settlement, 1,095 for an eight-hour cycle — to get a comparable annual percentage. Quoting funding this way is what makes it possible to weigh the cost of a long position on one venue against the cost of the equivalent position elsewhere, and it is also the unit most funding heatmaps and trackers display by default.
Funding is the recurring piece of holding a perpetual position, but it sits alongside trading fees paid on entry and exit, and on some venues a separate borrow or interest charge. Traders building a strategy around funding — collecting it through a hedged position, for instance — need to net all of these against each other before assuming a positive rate is free money; the mechanics of that trade are covered in the funding arbitrage guide .
A funding rate is a periodic payment exchanged directly between long and short traders on a perpetual futures contract, designed to keep the contract's price close to the underlying asset's spot price. When the rate is positive, longs pay shorts; when negative, shorts pay longs.
Because a perpetual never expires, it has no settlement date to force convergence with spot the way dated futures do. Funding substitutes for that by making it costlier to hold the crowded side of the market, which pushes traders toward the less popular side and narrows the gap between the perpetual's price and its index.
Perpetual markets for stocks, gold, indices and pre-IPO names — settled on-chain, no wallet-to-exchange transfers.
