Technical Definition

Funding rate

A funding rate determines periodic payments between long and short perpetual-futures traders to help keep the contract price near the spot price.

By Crypto University Editorial
Long / ShortPerpetual futuresMargin

✦ Key Insight

Funding can increase the cost of holding a leveraged position and provides information about positioning in the perpetual market.

✕ Common Misconceptions

Funding rates can change rapidly and differ between exchanges. A positive rate does not guarantee that the market will fall.

Detailed Explanation

Perpetual futures do not have a normal expiry date. Funding payments help discourage their prices from drifting too far from the underlying spot market.

In Practice

“A trader holding a long perpetual contract may owe a funding payment when the applicable rate is positive.”

Dig Deeper

Perpetual Futures

A perpetual futures contract is a derivative that tracks an underlying asset without a fixed expiry date and commonly uses funding payments to anchor its price.

Margin

Margin is capital deposited or maintained to support a leveraged trading position.

Leverage

Leverage allows a trader to control a position larger than the capital committed to support it.

Long / Short

A long position generally benefits when an asset rises in price, while a short position generally benefits when it falls.