# How Are Funding Rates Calculated? The Perp Funding Formula

> Most exchanges calculate funding as premium index plus a clamped interest rate, then apply caps. Learn the formula, the 0.01% baseline and why intervals differ.

Updated: 2026-09-24

**On most exchanges, the funding rate is calculated as the premium index plus a clamped interest rate adjustment: funding = premium index + clamp(interest rate − premium index).** The result is then held within a cap and floor for each market. Exact formulas vary by exchange, but this structure explains why funding often sits at a fixed baseline and only moves when the perp trades well away from spot.

## Key takeaways

- The common formula is **funding = P + clamp(I − P, −0.05%, +0.05%)**, where P is the premium index and I is the interest rate.
- The typical interest component is **0.01% per 8 hours**, about **10.95% APR**.
- When the premium is small, funding **equals the interest rate**, which is why 0.01% is so common.
- A **cap and floor** limit how extreme funding can get, and they differ by market.
- **Intervals differ by venue**: 8 hours, 4 hours or 1 hour. Compare rates on one scale, per 8 hours or in APR.
- **Exact formulas vary by exchange.** Treat this as the common pattern, not a universal rule.

## The two ingredients

Funding on a [perpetual future](/learn/what-are-perpetual-futures) is built from two parts.

**1. The premium index (P).** This measures how far the perp trades above or below its spot index, averaged over the funding interval. A positive P means the perp is at a premium. See [what is the premium index](/learn/what-is-the-premium-index) for how it is sampled.

**2. The interest rate (I).** This is a small fixed rate meant to reflect the difference between borrowing the quote currency (for example USDT) and the base asset (for example BTC). On many exchanges it is set at **0.03% per day**, which is **0.01% per 8-hour interval**.

## The formula

The widely used form, published by Binance and followed in similar forms by several other venues, is:

**Funding rate = P + clamp(I − P, −0.05%, +0.05%)**

The clamp function limits a value to a range. Here it means: take the difference between the interest rate and the premium, but never let that adjustment exceed 0.05% in either direction.

Working through it with I = 0.01% gives three zones:

| Premium index (P) | I − P | Clamped adjustment | Funding rate |
|---|---|---|---|
| Between −0.04% and +0.06% | Between −0.05% and +0.05% | Unchanged | Equals I = **0.01%** |
| Above +0.06% | Below −0.05% | −0.05% | P − 0.05% |
| Below −0.04% | Above +0.05% | +0.05% | P + 0.05% |

The middle zone is the key insight. Any premium in that band gets fully offset by the clamp, and funding lands exactly on the interest rate. That is why so many markets show 0.0100% funding in quiet conditions.

## Worked examples

Assume I = **0.01%** per 8 hours and a clamp of ±0.05%.

**Example 1: small premium.** P = **0.03%**

- I − P = 0.01% − 0.03% = −0.02% (inside the clamp)
- Funding = 0.03% + (−0.02%) = **0.01%**

**Example 2: large premium.** P = **0.15%**

- I − P = 0.01% − 0.15% = −0.14%, clamped to −0.05%
- Funding = 0.15% − 0.05% = **0.10%**
- APR = 0.10% ÷ 8 × 8,760 = **109.5%**

**Example 3: discount.** P = **−0.12%**

- I − P = 0.01% − (−0.12%) = 0.13%, clamped to +0.05%
- Funding = −0.12% + 0.05% = **−0.07%**, so shorts pay longs

**Payment size.** Funding payment = position notional × funding rate. A **$20,000** position at 0.10% pays or receives $20,000 × 0.001 = **$20** for that interval. Many exchanges measure notional at the mark price. Try your own numbers in the [funding rate calculator](/tools/funding-rate-calculator).

## Caps and floors

After the formula runs, exchanges limit the result to a maximum (cap) and minimum (floor). This protects traders from extreme payments during squeezes. The limits:

- **differ by market**, with less liquid contracts often allowed wider ranges;
- **differ by exchange**, and some venues tie them to the contract's maintenance margin;
- **can change** when an exchange updates its contract specifications.

When a market sits at its cap for a long time, the cap becomes the binding number, not the formula. Some exchanges also shorten the funding interval for a market when funding keeps hitting the cap, which makes each payment smaller but more frequent.

## Intervals differ by venue

The formula gives a rate per interval, and intervals are not the same everywhere:

| Venue type | Common interval | Payments per day |
|---|---|---|
| Many large CEXs | 8 hours | 3 |
| Some CEX markets | 4 hours or 1 hour | 6 or 24 |
| Perp DEXs such as Hyperliquid and dYdX | 1 hour | 24 |

Some hourly venues calculate an 8-hour-equivalent rate and charge a fraction of it every hour. Either way, a raw rate means nothing without its interval. Normalize before comparing:

**Funding APR = rate ÷ interval hours × 8,760**

| Rate shown | Interval | APR |
|---|---|---|
| 0.01% | 8h | 10.95% |
| 0.01% | 4h | 21.90% |
| 0.01% | 1h | 87.60% |

The [funding interval converter](/tools/funding-interval-converter) does this for any rate. The annualized figure is simple, not compounded.

## Predicted vs settled funding

During each interval, exchanges show a **predicted** (or estimated) rate based on the premium samples collected so far. It can move a lot before the funding timestamp. The **settled** rate is what is actually paid. On many CEXs, you pay or receive funding only if you hold the position at the timestamp. Traders who open a position right before settlement based on the predicted rate can be surprised if the final rate differs.

## How exchanges differ

The common pattern above is a starting point. Venues can differ in:

- **premium sampling**: how often the premium is measured and how samples are weighted;
- **impact size**: the notional used to compute impact bid and ask prices;
- **interest rate**: some use 0.01% per 8 hours, some use a different value or zero;
- **clamp width**: the ±0.05% band is common but not universal;
- **caps, floors and intervals**: set per market.

Check each exchange's contract specifications before relying on a calculation.

## Common mistakes

- **Comparing rates without the interval.** A 1-hour rate looks small but can be the highest APR on the screen.
- **Assuming a formula is universal.** Exact formulas vary by exchange.
- **Extrapolating current funding.** Funding changes every interval. Review [funding history](/funding-rates/btc/history) before assuming a rate will last.
- **Ignoring fees.** For [funding rate arbitrage](/learn/funding-rate-arbitrage-guide), entry and exit trading fees can outweigh several intervals of funding.

## How ArbTide helps

The [live funding rates page](/funding-rates) shows current funding across venues with every rate normalized to APR, so different intervals are directly comparable. To estimate returns on a two-leg trade, use the [funding arbitrage calculator](/tools/funding-arbitrage-calculator).

## Frequently asked questions

### How is the funding rate calculated?

On many exchanges, the funding rate equals the premium index plus clamp(interest rate − premium index), where the clamp limits the adjustment to a small band such as ±0.05%. The result is then limited by a cap and floor set per market. Exact formulas vary by exchange.

### Why is the funding rate often exactly 0.01%?

Many exchanges use an interest rate component of 0.01% per 8 hours. When the premium index is small, the clamp term cancels it out and the funding rate equals the interest rate, so 0.01% becomes the default in calm markets.

### What is the interest rate component in funding?

It is a small fixed rate meant to reflect the difference in borrowing costs between the quote currency and the base asset. On many exchanges it is set to 0.03% per day, which works out to 0.01% per 8-hour interval.

### Is there a maximum funding rate?

Yes. Exchanges set a cap and a floor on the funding rate for each market. The limits differ by exchange and by contract, and some venues tie them to the market's margin requirements.

### Do all exchanges calculate funding the same way?

No. Exchanges differ in how they sample the premium index, the size of the clamp, the caps and floors and the funding interval. Always check the contract specifications on the venue you trade.