™The funding rate is a periodic payment between traders holding long and short positions in a perpetual futures contract. It exists because perpetual futures never expire, so the exchange needs another way to keep their price close to the spot price.
Who pays whom
| Funding | Who pays | What it usually means |
|---|---|---|
| Positive | Longs pay shorts | The perpetual is trading above spot — demand for leveraged longs is high |
| Negative | Shorts pay longs | The perpetual is trading below spot — demand for leveraged shorts is high |
| Near zero | Little is paid either way | Positioning is balanced |
How it is calculated
Your payment is your position size × the funding rate at each funding time. If you hold a $10,000 long and the rate is +0.01%, you pay $1 at that funding time; a short of the same size receives it. Many exchanges, including Binance for most pairs, settle funding every 8 hours, but some contracts use shorter intervals, so check the contract. You only pay or receive if you hold the position at the funding time.
What funding tells you
- Crowding. Very high positive funding means many traders are paying to be long with leverage. A crowded side is vulnerable: a sharp drop can force those longs out in a liquidation cascade.
- Fear. Deeply negative funding means traders pay to be short. If price rises instead, shorts can be squeezed.
- Confirmation. A rally with moderate funding is less crowded than the same rally with extreme funding.
Common mistakes
- Ignoring the cost. Holding a large leveraged position through many funding periods at a high rate adds up.
- Fading funding on its own. "Funding is high, so I short" loses money in strong trends.
- Comparing different intervals. An hourly rate and an 8-hour rate are not the same size; compare like with like.
Funding in LiveTradingAI
Market Verdict weighs funding together with open interest, liquidations, trend, momentum and other factors into a plain-English market read, and keeps a public, scored track record of past reads. The LTAI Terminal shows liquidations live next to the footprint. Free in the browser. Open Market Verdict →