Funding rate
The funding rate is a periodic payment between long and short holders of a perpetual futures contract. It keeps the contract's price close to the spot price.
How Funding rate is calculated
On many venues funding is exchanged every 8 hours. When the contract trades above spot, the rate is positive and longs pay shorts. When below, shorts pay longs. The payment is the rate times the position's notional value, so a 0.01 percent rate on a 10,000 dollar position is 1 dollar per interval.
How it is read
A strongly positive rate means many traders are paying to be long. It is a measure of positioning, and the rate can stay high for long periods.
Common mistakes
- Calling funding free yield. The position carries price risk and liquidation risk.
- Looking at one venue's rate and calling it the market's.
- Ignoring that the rate changes every interval.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
Lessons that cover it
- Fear gauges: the VIX, funding and sentiment
- Owning a coin versus a perpetual contract
- Funding fees and blockchain data
- The full cost of a leveraged crypto trade, and the ‘free yield’ trap
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.