What is Funding Rate?
A periodic payment between long and short holders in perpetual futures markets that keeps the contract price close to the spot price.
The funding rate is the mechanism exchanges use to keep perpetual futures prices anchored to the underlying spot market. Every 8 hours (on most exchanges), one side of the market pays the other.
How it works:
Calculating funding cost:
Funding cost = Position Size × Funding Rate
Example: $10,000 long, funding rate = 0.01%
Every 8 hours: $10,000 × 0.01% = **$1**
Per day: $3 | Per month: ~$90
Reading the market from funding rates:
| Rate | Signal |
|---|---|
| 0.01% (neutral) | Balanced market |
| 0.05–0.1%+ | Extreme long bias — potential crowded trade |
| Negative | Extreme short bias — potential short squeeze |
High positive funding rates often precede corrections — everyone is long and overleveraged. Contrarian traders use this as a signal.
Which exchanges?
Bybit and Binance settle funding every 8 hours. OKX settles every hour at 1/3 the rate. Always check the current rate before holding large leveraged positions overnight.