Funding Rate
A periodic payment between long and short traders on perpetual futures to keep the contract price aligned with spot price.
Explained Simply
Funding rates are a mechanism unique to perpetual futures contracts. When the perpetual price is above spot price, longs pay shorts (positive funding). When below, shorts pay longs (negative funding). Payments typically occur every 8 hours. High positive funding means the market is very bullish and it's expensive to hold long positions. Traders monitor funding rates as a sentiment indicator — extreme rates often precede reversals.
Example
A 0.01% funding rate every 8 hours means a $10,000 long position pays about $1 per period, or roughly $3/day to stay open.
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This content is for educational purposes only and does not constitute financial, tax, or legal advice. Always consult a qualified professional for advice specific to your situation.