The funding rate is a payment that longs and shorts on crypto perpetual futures make to each other at set intervals. It goes between traders, not to the exchange as a fee.
Why it exists
Perpetual futures have no expiry, so nothing forces their price back to spot. Funding is the mechanism that keeps the two close.
- When futures trade above spot, funding tends to be positive, and longs pay shorts.
- When futures trade below spot, funding tends to be negative, and shorts pay longs.
How to read it
| Funding | Who pays | What it suggests |
|---|---|---|
| Positive | Longs pay shorts | Positioning leans long |
| Near zero | Almost nobody | No strong lean |
| Negative | Shorts pay longs | Positioning leans short |
How it's calculated
Funding payment = position size × funding rate
It's based on your full position including leverage, not your margin, which is why it can cost more than people expect.
An example, using made-up numbers to show the math:
- $1,000 margin at 10x leverage is a $10,000 position
- A 0.01% funding rate costs $1 per payment
- With three payments a day, that's $3 a day, or 0.3% of your margin
At a 0.1% rate, it's $30 a day, or 3% of your margin. Intervals and rates differ by exchange and coin, so check your exchange's rules.
Common mistakes
- Treating it as a timing signal. Funding shows crowding, not that a reversal is near. Crowded positioning can last for days.
- Trusting one big number on a thin coin. Low-volume coins can show extreme funding readings.
- Farming negative funding. Price moves can easily outweigh the payments you collect.
- Forgetting it only applies at settlement. You only pay or receive if you hold a position at that moment.
What to read alongside it
Check whether positions are growing with open interest, which side traders are on with the long/short ratio, and where forced closes sit on the liquidation map.
The WhaleCue Sectors screen lists coins with negative funding every day.
FAQ
Does funding come out of my balance directly? Yes. It's added to or taken from your margin at settlement, so over time it can also move your liquidation price.
Does spot trading have funding? No. Only perpetual futures do.
This isn't investment advice. Always make your own decisions.