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Futures & Market Mechanics

Funding Rates Explained: How Perpetual Futures Funding Really Works

What does it really cost, and what should you check first?

A large gold coin with a wedge cut out, the removed wedge sitting in a black tray beside a small lime bar.
Funding is a recurring payment between traders who are long and short a perpetual contract. When the rate is positive, longs pay shorts; when it is negative, shorts pay longs. Each payment is position value × funding rate, and you only pay or receive it if your position is open at the settlement time. In a hypothetical example, a $10,000 long at +0.01% pays $1.00 at one settlement, and the matching short receives $1.00.
Updated

Who pays, and how much

The sign of the rate decides direction. Positive funding generally appears when the perpetual trades above its reference price, so longs pay shorts to pull the two back together. Negative funding reverses the flow.

The amount is position value × funding rate. Position value is the full notional of the contract, not the margin you posted, so leverage makes funding larger relative to your own money.

  • Positive rate: longs pay, shorts receive.
  • Negative rate: shorts pay, longs receive.
  • Hypothetical: $10,000 position × 0.01% = $1.00 per settlement.
  • Hypothetical: $1,000 of margin at 10x is a $10,000 position, so that $1.00 is 0.10% of the margin each time.

Funding math

Put a dollar number on the funding rate

The quick formula is simple: position size × funding rate. If the rate is against you, that is what you pay each funding interval. If it is in your favor, that is what you receive before fees, spreads, and price movement.

Example:

A $10,000 position at a 0.01% funding rate costs about $1 per funding payment. If funding happens 3 times per day and the rate stays the same, that is about $3 per day.

Per payment

$1.00

Per day

$3.00

Holding period

$21.00

At +0.010% funding, a $10,000.00 long position would pay about $21.00 over 7 days, assuming 3 funding payments per day, an unchanged rate, and a position held through every settlement. A matching short would receive the same amount.

Small test position

$1,000.00 × +0.010% × 3/day × 1 day

≈ $0.30

A tiny-looking rate is still visible if you hold through every interval.

Active futures position

$10,000.00 × +0.030% × 3/day × 3 days

≈ $27.00

This is where funding stops feeling like trivia and starts becoming trade cost.

Crowded trade, worse funding

$25,000.00 × +0.080% × 3/day × 7 days

≈ $420.00

If the rate stays ugly, the carry cost can become the trade thesis breaker.

Settlement timing decides whether you pay at all

Funding is exchanged at fixed settlement times, not continuously. Only positions held at that moment pay or receive. A position opened and closed between two settlements neither pays nor receives funding for that interval.

Many contracts settle every 8 hours, but intervals differ by contract and exchange and can be changed. The rate can also change at every settlement, so the rate you see now is not the rate you will be charged later.

  • Check the next settlement time and interval on the contract page.
  • Holding through one more settlement adds one more payment, in whichever direction the rate points then.
  • A displayed predicted rate is an estimate until settlement.

What funding does to a directional trade

For a long held while funding stays positive, funding is a carrying cost on top of trading fees. For a short in the same market it is income, but only while the rate stays positive and only if the position survives price moves against it.

The cost compounds with time and notional, not with conviction. A position you plan to hold for days should be priced with funding included; a trade closed within one interval may never touch it.

Next step

Guide route

Thinking of collecting funding instead of paying it?

See a $1,000 spot-plus-short hedge priced with all four trading fees, the real capital required, and the costs a positive rate does not cover.

See the $1,000 funding-rate example

Collecting funding is a hedged trade, not free income

Traders who try to collect positive funding usually buy spot and short an equal perpetual, so price moves roughly cancel while the short receives funding. That is funding-rate arbitrage, and it carries four trading fees, roughly double the capital of the position, basis risk, and the risk that the rate reverses.

Our $1,000 worked example puts numbers on it: at hypothetical inputs, seven days of funding still finishes $1.00 short of the fees. Read it before treating a positive rate as a yield.

How to use funding when choosing a futures venue

Funding is set by each market, so no venue promises a better rate. What differs is what you can check and control: the settlement interval, how clearly the current and historical rates are shown, your own fee tier, and whether the contract is available to you at all.

Use funding as one input next to fees, liquidity, and margin controls, then confirm product eligibility for your country on the official exchange before opening a position.

  • Settlement interval and next settlement time are visible on the contract page.
  • Funding history is available to judge how often the rate flips.
  • Your own maker and taker fees, not a headline tier.
  • Perpetual contracts are offered to residents of your country.

Before you act on this guide

  • The $10,000 and $1,000 figures and the 0.01% rate are hypothetical inputs, not current or typical funding rates.
  • Funding rates and intervals change and can reverse; check the live contract page before trading.
  • Perpetual futures are not available in every country, and leverage can lead to liquidation.

Still comparing? Useful pages

Guide route

$1,000 crypto funding-rate arbitrage worked example

Guide route

Liquidation price explained

Next step

Bybit: Funding fee calculation

Next step

Best for

Compare futures venues with funding in the checklist

Use the futures shortlist to compare fees, liquidity, and product access, then check the live funding rate and interval on the official contract page.

See futures exchange picksCompare OKX vs Bybit

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$1,000 Crypto Funding-Rate Arbitrage: 7 Days Can Still Lose $1

FAQ

Who pays when the funding rate is positive?

Traders long the perpetual pay traders who are short. When the rate is negative, shorts pay longs.

Do I pay funding if I close before the settlement time?

No. Only positions open at the settlement time pay or receive funding for that interval.

Is funding charged on my margin or my position size?

On position value, the full notional. With leverage, that makes funding larger relative to the margin you posted.

Can I earn the funding rate by shorting with a spot hedge?

That is funding-rate arbitrage. It can work when cumulative funding clearly exceeds four trading fees and execution costs, but small positions often lose money, as the $1,000 worked example shows.