L'INFORMATEUR CRYPTOHome › Glossary › Funding rate
Funding rate: definition
The funding rate is the periodic payment exchanged between buyers and sellers of perpetual contracts to keep their price close to the spot price.
Definition
Perpetual contracts have no expiry date. To keep their price in line with the spot market, exchanges apply a funding rate, usually paid every 8 hours between longs and shorts.
How to read it
- Positive funding: longs pay shorts. Leveraged buyers dominate and are willing to pay to keep their position.
- Negative funding: shorts pay longs. The market is overloaded with short sellers.
- Extreme funding (either way): positioning is unbalanced, an opposite move to liquidate the majority becomes likely.
Concrete example
A funding rate of +0.01% every 8 hours is neutral. At +0.05% or more, a x10 leveraged long pays about 1.5% of its margin per day: the position is expensive, and a pullback is enough to trigger a chain of closes.
Pitfalls to avoid
- Shorting just because funding is positive: in a strong uptrend, it can stay that way for a long time.
- Forgetting the cost of funding on a position held for several days.
Frequently asked questions
Who sets the funding rate?
Each exchange calculates it from the gap between the perpetual price and the spot price (premium), plus a base interest rate.
Is funding paid on spot?
No, it only applies to perpetual contracts. Holders of the crypto on spot neither pay nor receive funding.