Funding Rate
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In Brief
The funding rate is a periodic payment exchanged between long and short traders in perpetual futures markets that keeps the perpetual contract price aligned with the underlying asset's spot price.
What Is a Funding Rate?
The funding rate is a recurring payment exchanged between long and short traders in a perpetual futures market. It is the mechanism that keeps the perpetual contract price tethered to the spot price of the underlying asset, compensating for the fact that perps have no expiry date.
Funding rates are typically paid every 8 hours, though some exchanges use 1-hour or 4-hour intervals. The rate can be positive (longs pay shorts) or negative (shorts pay longs)
depending on whether the perpetual contract is trading above or below the spot price.
How Does the Funding Rate Work?
The exchange calculates the gap between the perpetual contract price and the spot index price.
If perps trade above spot, the funding rate is positive — longs pay shorts.
If perps trade below spot, the funding rate is negative — shorts pay longs.
At each funding interval, the rate is applied to every open position based on position size.
Funding payments are settled directly in the wallet — no trade is executed.
The funding payment for a single interval is calculated as:
Funding Payment = Position Size × Funding Rate
Key Properties of Funding Rates
Market Sentiment Signal
Persistently high positive funding rates indicate bullish sentiment (many longs paying shorts). Persistently negative funding rates indicate bearish sentiment.
Funding Interval
Most exchanges settle funding every 8 hours (three times per day). Some platforms use more frequent intervals.
Variable Rate
Funding rates are calculated algorithmically based on the price difference and interest rate components. They are not fixed.
Example Funding Rate Scenarios
| Scenario | Perp vs Spot | Funding Rate | Who Pays |
|---|---|---|---|
| Bull market euphoria | Perp trades +1% above spot | +0.01%/hour | Longs pay shorts |
| Neutral market | Perp ≈ spot | ~0% | Minimal transfer |
| Bear market panic | Perp trades -1% below spot | -0.01%/hour | Shorts pay longs |
Why Funding Rates Exist
Unlike traditional futures, perpetual futures never expire — so there is no natural convergence between the perp price and the spot price at settlement. The funding rate forces this convergence artificially by penalizing whichever side is further from the spot price.
Strategies Related to Funding Rates
Funding rate arbitrage — holding opposing spot and perp positions to collect funding payments
Funding-based sentiment trading — using extreme funding rates as contrarian signals
Short squeeze / long squeeze anticipation — watching funding for overcrowded trades
Funding Rate and Trust Wallet
When trading perps through Hyperliquid or Aster DEX via Trust Wallet, funding rates are applied directly to open positions according to each platform's schedule. Users can view current funding rates in the trading interface before opening a position.