What funding rates can and cannot tell you
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A funding rate is the fee exchanged between longs and shorts to pull a perpetual futures price back towards spot. It shows which side of the book is crowded, not which way the price is going. What it tells you is simply who is currently paying to hold their position.
Key points
- A fee that pulls perpetual prices back towards spot
- Positive means longs pay, negative means shorts pay
- It shows crowding, not direction
- It is a real carrying cost hitting your P&L
Definition
The periodic fee exchanged between holders of long and short perpetual futures positions, designed to push the futures price back towards spot whenever the two diverge.
Perpetual futures never expire, so without a correction their price drifts from spot. Most venues therefore charge funding at fixed intervals, often every eight hours. When futures trade above spot the rate is positive and longs pay shorts; below spot, the payment reverses.
The sign and size tell you which side is crowded and paying to stay there. A sustained positive rate says the futures market is leaning long. That is a description of current positioning, and a separate question from where the price goes.
What matters in practice is that funding leaves your account every interval. At high annualised rates, holding a position erodes P&L even if the price never moves. In delta-neutral strategies funding is both the revenue and the cost line, which is its proper use: an input to cost calculations, not a direction call.
Watch out for
- · There is no basis for predicting reversals from the level of the rate
- · Formulas, intervals and caps differ by venue, so do not compare raw numbers
- · Under leverage, funding alone can grind down your margin