Trading term
What is Funding rate?
The funding rate is a periodic payment exchanged between the long and short holders of a perpetual future, used to keep the perp's price tethered to the spot price. When the perp trades above spot, longs pay shorts (and vice versa), nudging the price back in line. It's the mechanism that replaces an expiry date.
Because a perpetual future never expires, it has no settlement to force its price toward spot — so the funding rate does that job. Every funding interval (commonly every eight hours), the exchange calculates how far the perp is trading from the underlying spot price and sets a rate. Traders on one side pay traders on the other: when the perp trades at a premium to spot, longs pay shorts, which discourages new longs and pulls the price down; when it trades at a discount, shorts pay longs. It's a self-correcting tug that keeps the perp anchored.
The funding rate is also a market-sentiment gauge. A high positive funding rate means longs are paying a lot to hold — a sign the market is heavily long and possibly overheated; a negative rate means shorts are paying, signalling bearish crowding. Traders watch funding both as a cost to factor into a position (it accrues every interval) and as a contrarian signal: extreme funding often marks crowded positioning that can unwind sharply. For anyone holding perpetuals, funding is a real, recurring cash flow — sometimes a cost, sometimes income.
When the perpetual trades above spot, longs pay shorts (and vice versa below) — a periodic payment that nudges the price back in line. It's the mechanism that replaces an expiry date.
For example
A Bitcoin perpetual trades slightly above spot, so the eight-hour funding rate is +0.01%. A trader holding a $10,000 long position pays $1 to the shorts each interval — small individually, but it recurs three times a day, and it rises when the market gets crowded on the long side.
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Explore Premium →Why it matters to you
The funding rate is what makes expiry-less perpetual futures work, and it doubles as one of crypto's clearest sentiment indicators. For any perp trader it's a real cost or income to account for; for market-watchers, extreme funding flags crowded positioning that often precedes a sharp reversal.
⚠ Extreme funding signals crowding
Traders often ignore funding until it's expensive. But a very high positive funding rate means almost everyone is long and paying up to stay there — a crowded trade that can unwind violently when it reverses. Chasing a move while funding is extreme means paying peak carrying costs right as the position is most vulnerable.