Definition
Funding rate
A funding rate is the periodic payment between long and short holders of a perpetual future. Definition, formula, who pays, and why the annualised figure matters.
A funding rate is a periodic payment exchanged between the long and short holders of a perpetual futures contract, which keeps the contract price tethered to spot. A positive rate means longs pay shorts. It is quoted per interval — usually every eight hours — which makes it look trivial: 0.01% per interval is 0.03% a day, but 10.95% annualised, comparable to the entire expected return of many systematic strategies.
- Also known as
- perpetual funding · funding fee
How it is calculated
Payment = Position notional × Funding rate
Annualised = Funding rate × Intervals per day × 365
Positive rate: longs pay shorts. Negative rate: shorts pay longs.
Charged only on positions open at the settlement timestamp.
Worked example: $10,000 notional at 0.01% every 8 hours for 30 days → $90, regardless of price movement.
It is charged on notional, not on margin
Funding scales with position size, not with capital committed, so a 10× leveraged position pays ten times the funding of an unleveraged one backed by the same margin. Any leveraged carry strategy therefore has to clear a much larger hurdle than its unleveraged equivalent before the price has moved at all.
Funding is a crowding signal
Persistently positive funding means the market is paying to stay long — information about positioning rather than about price. Extended periods of elevated positive funding often precede long-side liquidation cascades, because the leverage paying the funding is the same leverage that gets force-closed when price turns.
How it gets misread
Funding is often ignored on the grounds that a single payment is negligible. It is charged three times a day and independently of whether the trade is working, so on any position held for weeks it is a fixed cost that has to be subtracted from expectancy before the strategy is evaluated.
Calculate it
Sources
- BIS Working Papers No 1087: Crypto carry — Bank for International Settlements
- Fundamentals of Perpetual Futures — Songrun He, Asaf Manela, Omri Ross and Victor von Wachter (arXiv:2212.06888)
- Introduction to Funding Rate — Bybit
Definitions are educational. Nothing here is investment advice, and no metric described on this page predicts future results.
Definitions are the easy part
Knowing what drawdown means is not the same as having a system that halts on it. QANTERION applies these limits while a strategy runs.