What Is Funding Rate?
The funding rate is the mechanism that keeps perpetual futures prices anchored to the spot price. Here's everything you need to know.
Positive funding
+0.01%
Longs pay shorts — market is bullish
Neutral funding
0.00%
Balanced market — no payment
Negative funding
−0.02%
Shorts pay longs — market is bearish
How it works
Perpetual futures have no expiry date — unlike quarterly futures. To prevent the perp price drifting too far from spot, exchanges charge a funding fee every 8 hours (on Binance/Bybit).
🔴 Positive funding rate (+): The perp is trading above spot. Longs pay shorts. This incentivises more shorts and fewer longs, pulling the perp price back down toward spot.
🟢 Negative funding rate (−): The perp is trading below spot. Shorts pay longs. This incentivises more longs, pushing the perp price back up toward spot.
The default rate is 0.01% every 8 hours = 0.03%/day = ~10.95%/year if it never changes.
Funding fee formula
Funding Fee = Position Size × Funding Rate
Per 8h
$1.00
Per day
$3.00
Per week
$21.00
Per year (APR)
$1,095
Extreme funding = contrarian signal
🔴 Very high positive (>0.10%/8h)
- Market is extremely long-biased
- Longs are paying a lot to stay long
- Often precedes a reversal/long-squeeze
- Good moment to consider taking profits
🟢 Very negative (<−0.05%/8h)
- Market is extremely short-biased
- Shorts are paying to stay short
- Often precedes a short-squeeze up
- Longs can earn while waiting for reversal