What Is a Funding Rate in Crypto? Perpetual Futures Explained

A funding rate is a periodic payment between traders who are long and traders who are short a perpetual futures contract, designed to keep the contract's price close to the underlying spot price. When the funding rate is positive, longs pay shorts. When it is negative, shorts pay longs.

Key takeaways

• Funding rates exist because perpetual futures never expire, so they need another way to track spot.
• Positive funding means longs pay shorts; negative funding means shorts pay longs.
• Payments are made between traders, not to the exchange.
• Intervals differ: 8h, 4h or 1h depending on the venue and market.
• A common neutral rate is 0.01% per 8 hours ≈ 10.95% APR.
• Differences between exchanges create funding rate arbitrage opportunities.

Why perpetual futures need funding

Traditional futures have an expiry date, and their price converges to spot as that date approaches. Perpetual futures ("perps") never expire, so without a mechanism they could drift far from the real price. Funding solves this:

• If the perp trades above spot, funding turns positive. Longs pay shorts, which makes holding longs more expensive and pulls the price down.
• If the perp trades below spot, funding turns negative. Shorts pay longs, which pulls the price up.

How the funding rate is calculated

Each exchange uses its own formula, but most combine two parts:

1. Premium index: how far the perp price is from the spot (index) price.
2. Interest rate component: a small fixed rate reflecting the cost of borrowing the quote versus the base asset.

On Binance, for example, the interest component is set so that funding for most USDT-margined contracts sits at 0.01% per 8 hours when the premium is close to zero. Many exchanges follow a similar baseline, and rates are capped within limits that vary by market.

How much do you pay or receive?

Funding payment = position size (notional) × funding rate

Example: you hold a $10,000 long BTC position and the funding rate is 0.01%.

• You pay $10,000 × 0.0001 = $1 at each funding time.
• With an 8-hour interval, that is 3 payments per day, about $3 per day or $1,095 per year (10.95%).

On most centralized exchanges, you only pay or receive funding if you hold the position at the funding timestamp. Perp DEXs such as Hyperliquid settle every hour.

Comparing rates across exchanges

The same coin can have different funding rates and different intervals on each venue, so raw numbers are misleading. Normalize them first:

Rate shown	Interval	Hourly rate	APR
0.0100%	8h	0.00125%	10.95%
0.0100%	4h	0.00250%	21.90%
0.0100%	1h	0.01000%	87.60%

The formula: APR = (rate ÷ interval hours) × 8,760. Every rate on ArbTide's live funding rates page is normalized this way.

How to read funding rates

Funding rate	What it usually means
Strongly positive	Longs are crowded and paying a premium; the market is bullish, possibly overheated
Around 0.01% / 8h	Neutral, baseline market
Negative	Shorts are crowded; bearish sentiment or heavy hedging
Extreme in either direction	Elevated risk of sharp moves and liquidation cascades

Funding rate arbitrage

When one exchange pays a much higher funding rate than another for the same coin, traders can short on the high-funding exchange and go long on the low-funding one. Price moves cancel out, and the trader collects the difference in funding. This is a delta-neutral strategy, and fees, slippage and price basis decide whether it is actually profitable. Read the full guide: What Is Crypto Arbitrage?

Check current rates for BTC, ETH or every coin.