In plain English
What Funding rate means
In perpetual futures, the funding rate is not a normal trading fee paid to the exchange. It is a cash transfer between traders on opposite sides of the contract. When the perpetual trades above spot, longs typically pay shorts; when it trades below spot, shorts typically pay longs. The rate is usually calculated and settled at fixed intervals.
Why it matters
Funding changes the true cost of holding a perpetual position. A trade can be profitable on price movement alone but still lose money after recurring funding charges or credits are included.
Example
If a trader holds a long position with a notional value of $10,000 and the funding rate is +0.01% for the interval, the funding payment is $1.00. This simplified example ignores leverage, exchange-specific settlement timing, and any rounding rules.
Quick answers
Common questions
Who pays funding in a perpetual future?+
The side that is on the more expensive side of the market pays the other side. If the perpetual trades above spot, longs usually pay shorts.
Is funding charged by the exchange?+
Usually no. It is typically a transfer between traders, though the exchange or clearing venue may define how it is calculated and settled.
Sources