Why do perpetual futures have a funding rate?

A perpetual future never expires, so — unlike a dated future — there is no settlement date to force its price back in line with spot. The funding rate is the mechanism that replaces expiry: by making the more crowded side pay the other, it creates a continuous economic incentive that pulls the perp's price back toward spot. Without it, a perp could drift arbitrarily far from the real asset price.

Who pays the funding rate — longs or shorts?

It depends on which way the rate is pointing. When funding is positive (the common case for majors, because leveraged traders tend to lean long), longs pay shorts. When funding is negative, shorts pay longs. You only exchange funding if you hold a position at the moment it settles.

How often is funding paid, and how big is it?

On most major venues funding settles roughly every eight hours — about three times a day. Each individual payment is usually small: often a fraction of a percent per settlement. It varies by asset and by sentiment, and it can turn negative. You can see current live rates and their annualized size on Fygga's funding monitor. This is educational information, not financial advice.

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What is a funding rate?

A plain-English, beginner’s explainer of the crypto perpetual-futures funding rate — what it actually is, why it exists, who pays whom, how big it typically is, and how often it settles. No jargon, no hype.

Educational information only — not financial advice, not a forecast, and not a signal. Any figure shown is descriptive market or historical backtest data. Past performance is not indicative of future results.

The one-sentence version

A funding rate is a small periodic payment that flows between the people holding the long side and the short side of a perpetual future. It is not a fee the exchange pockets — it is a transfer directly between the two sides of the market, and its whole job is to keep the perpetual’s price glued to the real (spot) price of the asset.

Why it exists: the tether that replaces expiry

A perpetual future (a “perp”) is a crypto derivative that tracks an asset’s price but never expires. That convenience creates a problem. An ordinary dated future is pulled back toward spot by its settlement date — on expiry, the two prices must converge. A perp has no expiry, so there is no natural force keeping its price in line with the underlying. Left alone, it could drift.

The funding rate is the mechanism that solves this. When the perp trades above spot — meaning buyers are more eager — the rate goes positive and longs pay shorts. That makes holding a long slightly more expensive and rewards taking the short side, nudging the price back down toward spot. When the perp trades below spot, the rate flips negative and shorts pay longs, nudging it back up. It is a continuous, self-correcting incentive that replaces the convergence a dated contract gets for free at expiry.

Who pays whom?

Perp above spot · funding positive	Longs pay shorts	the common case for majors — leveraged demand leans long
Perp below spot · funding negative	Shorts pay longs	happens when the market flips net-short

You only ever exchange funding if you are holding a position at the moment it settles. Because leveraged traders on the majors tend to lean long, funding is positive much of the time — which is why the short side of a hedged position can collect it. But “much of the time” is not “always”: sentiment shifts, and the rate can and does turn 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 individual payment is usually small: often only a fraction of a percent per settlement. That is by design — the rate just needs to be big enough to nudge the price, not to be a headline yield.

To give an honest sense of scale rather than a snapshot that reads like a promise: in Fygga’s committed backtest across five liquid majors on real Binance history (2022–2026), the gross funding accrual — the raw funding collected before any trading costs — added up to about +19.3% in total, or roughly ~4%/yr. That is a modest, single-digit figure, and it is a pre-cost number — real net returns are smaller once fees and slippage are paid. Current per-asset rates change constantly; the live figures are on the funding monitor.

The +19.3% / ~4%/yr accrual figure reproduces the committed backtest on the results page exactly, and is illustrative context — not financial advice and not a forecast of future funding.

Where this leads

The reason the funding rate matters beyond mechanics is that it can be collected. If you short a perp to earn funding but hold an equal amount of the asset in spot, the price moves cancel out and you are left with the funding — a market-neutral position. That strategy is called funding-rate capture, and whether it is actually worth it after costs is a separate, honest question we answer next.

Keep going

Now that you know what a funding rate is, see how it gets collected, run the numbers yourself, or watch the live rate.

What is funding-rate capture? →Estimate it yourself See live funding rates

Frequently asked questions

What is a funding rate?: A funding rate is a small periodic payment exchanged between the long and short holders of a crypto perpetual future. It is not a fee the exchange keeps — it is a transfer between the two sides of the market. Its job is to keep the perpetual's price tethered to the underlying spot price. When the perp trades above spot, the rate is positive and longs pay shorts; when it trades below spot, the rate is negative and shorts pay longs.
Why do perpetual futures have a funding rate?: A perpetual future never expires, so — unlike a dated future — there is no settlement date to force its price back in line with spot. The funding rate is the mechanism that replaces expiry: by making the more crowded side pay the other, it creates a continuous economic incentive that pulls the perp's price back toward spot. Without it, a perp could drift arbitrarily far from the real asset price.
Who pays the funding rate — longs or shorts?: It depends on which way the rate is pointing. When funding is positive (the common case for majors, because leveraged traders tend to lean long), longs pay shorts. When funding is negative, shorts pay longs. You only exchange funding if you hold a position at the moment it settles.
How often is funding paid, and how big is it?: On most major venues funding settles roughly every eight hours — about three times a day. Each individual payment is usually small: often a fraction of a percent per settlement. It varies by asset and by sentiment, and it can turn negative. You can see current live rates and their annualized size on Fygga's funding monitor. This is educational information, not financial advice.

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This page is educational information only — not financial advice, not a forecast, and not a signal. All figures come from descriptive market data or a historical backtest and simulation; no live trading, no signal service, and no capital is managed. Past performance is not indicative of future results.