Derivatives 1 min read
Funding Rate
Also known as: Perpetual Funding, Funding
Periodic payment between long and short traders on perpetual futures. Keeps the perp price tied to spot.
How it works
Funding rate = (perp price − spot price) normalized, plus an interest component. If the perp trades at a premium, longs pay shorts to incentivize shorting and compress the premium.
Why it matters
- Persistently high positive funding → crowded longs → risk of long liquidation cascade.
- Persistently negative funding → crowded shorts → risk of a short squeeze.
- Funding flip through zero in a trend often marks local tops or bottoms.
Rule of thumb
Funding is a sentiment gauge, not a standalone trade signal. Pair with Open Interest and liquidations.
Frequently asked
Who pays funding?
On most exchanges funding is settled every 8 hours. If funding is positive, every long pays every short pro-rata. Negative funding flips the direction.
Is negative funding bullish?
Often yes — it means shorts are overcrowded and paying to hold their position. Sharp short squeezes usually follow.