What is a funding rate?
The perpetual-futures funding rate in plain English — what it is, why it exists, who pays whom, how big it is, and how often it settles.
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?
| Perp above spot · funding positive | Longs pay shorts | the common case — leveraged demand leans long |
| Perp below spot · funding negative | Shorts pay longs | happens when the market flips net-short |
You only exchange funding if you hold a position at the moment it settles. Because majors lean long, funding is positive much of the time — which is why the short side of a hedged position can collect it. But 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 payment is usually a fraction of a percent — big enough to nudge the price, not a headline yield.
Honest sense of scale
In Fygga’s committed backtest across five liquid majors on real Binance history (2022–2026), gross funding accrual — before any trading costs — was about +19.3% in total, roughly ~4%/yr. A modest, pre-cost figure; net returns are smaller once fees and slippage are paid. Live per-asset rates are on the funding monitor.
Where this leads
Funding can be collected: short a perp to earn it while holding an equal amount of the asset in spot, and the price moves cancel out. That market-neutral strategy is funding-rate capture — and whether it is worth it after costs is a separate question. Run the numbers on the estimator.
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 replaces expiry: by making the more crowded side pay the other, it creates a continuous incentive that pulls the perp's price back toward spot.
- Who pays the funding rate — longs or shorts?
- 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.
Related reading
The rest of the funding-rate explainers, in plain English.
What is delta-neutral (in crypto)?
What delta-neutral means, why a long-spot / short-perp pair cancels price direction, and the risks a hedge does not remove — it is not risk-free.
What is a basis trade (spot–futures basis)?
The spot–futures basis and cash-and-carry, how it differs from perpetual funding capture, when each one pays — and why Fygga's harness measures funding specifically.
What is funding-rate capture (delta-neutral funding yield)?
How a delta-neutral hedge collects perpetual funding without taking on price direction — and the honest, cost-aware numbers behind it.
Is funding-rate farming profitable? The honest answer
A modest ~3–5% market-neutral edge before costs, and why rebalance cadence quietly decides whether anything survives net.