What is a funding rate?

The one-sentence version

A funding rate is a small periodic payment between the long and short holders of a perpetual future. The exchange does not keep it — it is a transfer between the two sides of the market, and its job is to keep the perpetual’s price glued to spot.

Why it exists: the tether that replaces expiry

A perpetual future (“perp”) tracks an asset’s price but never expires. A dated future is pulled back to spot by its settlement date; a perp has no such force and could drift. Funding solves this: when the perp trades above spot the rate goes positive and longs pay shorts, nudging the price down. When it trades below spot the rate flips negative and shorts pay longs, nudging it back up.

Who pays whom?

You only exchange funding if you hold a position when it settles. Majors lean long, so a hedged short can usually collect it — until the rate turns negative.

How big is it, and how often does it settle?

On most major venues funding settles roughly every eight hours — about three times a day. Each payment is usually a fraction of a percent — big enough to nudge the price, not a headline yield.

Where this leads

Short the perp, hold equal spot, and the price moves cancel: that is funding-rate capture. Run the numbers on the estimator.