Funding Rate

The funding rate is a recurring payment exchanged between traders holding long and short positions in perpetual contracts. Its purpose is to maintain alignment between the perpetual contract price, reflected by the mark price, and the underlying spot index price.

What It Means:

• If the funding rate is positive: Traders holding long positions pay traders holding short positions.

• If the funding rate is negative: Traders holding short positions pay traders holding long positions.

This mechanism ensures that if the price of the perpetual diverges from spot (due to demand imbalance), there is a financial incentive for traders to take the opposite side, pulling prices back in line.

How It Works:

• Funding payments are settled at the beginning of each UTC hour between longs and shorts.

• You only pay or receive funding if you’re holding a position at the funding timestamp.

• The amount you pay/receive is proportional to your position size and the prevailing funding rate.

Why Its Important:

Funding rate has a direct impact on your profit and loss (PnL) over time. Even if price doesn’t move, a high funding rate can eat into returns (if you’re paying), or enhance gains (if you’re receiving).