GLOSSARY

Funding rate

Q: How often is funding paid?

On most venues funding settles every eight hours — three times a day — as a small percentage of a position's notional value, though some exchanges use one-hour or other intervals. You only pay or receive if you hold the position through the settlement time.

The funding rate is a periodic payment exchanged between long and short traders in a perpetual futures market to keep the perp price tethered to the underlying spot price. When funding is positive, longs pay shorts and the market is net-long; when it is negative, shorts pay longs and positioning is net-short.

How it works

A perp has no expiry, so nothing forces it back to spot except funding. When the perp trades above spot, funding turns positive and longs pay shorts, nudging traders to close longs; when it trades below, funding turns negative and shorts pay longs. Payments are usually settled every eight hours as a small percentage of position notional.

funding ≈ (perp price − index price) + interest component longs pay shorts when positive · shorts pay longs when negative

How to read it

Funding is a positioning gauge. Persistently high positive funding means longs are crowded and paying up to stay in, leverage is building and the market is vulnerable to a long squeeze. Deeply negative funding means shorts are crowded, which can set up a short squeeze. Extremes in either direction often precede a liquidation flush that resets positioning.

How to compare venues

Quoted funding is usually per-interval, so annualize it to compare across exchanges and against spot yields. A 0.01% eight-hour rate is roughly 11% a year, small; multi-tenths-of-a-percent prints are the ones that trigger real crowding.

Common misreads

Funding tells you how positioning is leaning, not which way price will go: crowded longs can stay crowded in a strong trend. Small positive funding is the normal resting state in a bull market, not a warning. Read it alongside open interest and liquidations, not alone.

FAQ

What does a positive funding rate mean?

It means the perpetual is trading above spot and the market is net-long, so long positions pay a periodic fee to short positions. Persistently high positive funding triggers crowded, leveraged longs and a rising risk of a long squeeze.

How often is funding paid?

On most venues funding settles every eight hours (three times a day) as a small percentage of a position's notional value, though some exchanges use one-hour or other intervals. You only pay or receive if you hold the position through the settlement time.

Does a high funding rate mean the top is in?

Not by itself. Extreme positive funding shows crowded longs and elevated squeeze risk, but crowded positioning can persist through a strong trend. It is a warning to watch alongside open interest and liquidations, not a standalone sell trigger.

Funding rate vs interest rate — are they the same?

No. A perp funding rate is a peer-to-peer payment between longs and shorts to keep the contract near spot; it can be positive or negative and changes with positioning. It is not a borrowing rate paid to the exchange.

How the desk uses it

The desk reads funding as a positioning tape: the cost of holding the crowded side, and the rate of change more than the level. Works best with open interest and the perp basis. A rate without the size behind it is not crowding. Used in TT by Funding Stress and the funding-rate chart.

Related terms

Perpetual futures Liquidation Slippage All terms