What is Funding Rate?
Funding rate is a small recurring payment swapped between long and short holders of a perpetual futures contract. It has no expiry to force convergence, so this payment nudges the perp price back toward spot: when the perp trades rich, longs pay shorts.
A perpetual futures contract never expires, so there is no settlement date to drag its price back to spot. The funding rate is the mechanism that fills that gap. At the end of each funding interval every open position pays or receives a fee proportional to its notional size. The payment flows directly between traders, not to the exchange, and its sign points the market back toward the spot price.
Direction follows the premium. When the perp trades above spot, the funding rate is positive and longs pay shorts, which discourages new longs and rewards shorts until the gap closes. When the perp trades below spot, the rate turns negative and shorts pay longs. The rate you see quoted is the per-interval rate, most often over 8 hours but 1 hour on many venues, and it is not annualized until you scale it.
To compare venues you convert the per-interval rate to an annual percentage. Multiply the rate by the number of intervals in a year: an 8-hour interval has 1095 periods (3 per day x 365) and a 1-hour interval has 8760. A modest 0.01 percent per 8 hours becomes 10.95 percent per year, and the same 0.01 percent charged hourly becomes 87.6 percent, so interval length matters as much as the raw number.
Funding rate arbitrage captures the difference between two venues while staying delta neutral: hold a long on the exchange that pays you funding and an equal short on the exchange where you pay less, so price moves cancel and you keep the spread. Gross carry is only the start. Net return is gross funding minus taker fees on both legs minus orderbook slippage on entry and exit, which is exactly the cost this screener subtracts in its backtester.
Annualized funding APR
periods_per_year = (24 / interval_hours) * 365 funding_APR = per_interval_rate * periods_per_year
per_interval_rate is the quoted rate as a decimal (0.01 percent = 0.0001). interval_hours is the funding period: 8 gives 1095 periods per year, 1 gives 8760.
Turning a per-interval rate into APR
- •Quoted rate: 0.01 percent every 8 hours (0.0001 as a decimal)
- •periods_per_year = (24 / 8) * 365 = 1095
- •funding_APR = 0.0001 * 1095 = 0.1095 = 10.95 percent
- •Same 0.01 percent charged hourly: (24 / 1) * 365 = 8760 periods
- •funding_APR = 0.0001 * 8760 = 0.876 = 87.6 percent
- •On a 10000 USD long paying the 8h rate: 10000 * 0.0001 = 1 USD per interval, 3 USD per day
Predicted vs realized funding
| Aspect | Predicted | Realized |
|---|---|---|
| Timing | Estimated before the interval closes | Locked in at the funding timestamp |
| Basis | Live premium plus interest rate component | Actual premium averaged over the interval |
| Can change | Yes, updates continuously until settlement | No, fixed once charged |
| Use in backtest | Signals where carry is heading | The number that actually hit the balance |
FAQ
Does a positive funding rate mean longs pay or receive?
A positive funding rate means longs pay shorts. It appears when the perp price trades above spot, so the payment pressures longs to close and pulls the perp back toward spot.
Why does the same funding rate produce different APR on two exchanges?
Because APR depends on how often funding is charged. A rate of 0.01 percent annualizes to 10.95 percent over an 8-hour interval but 87.6 percent over a 1-hour interval, so always check the interval before comparing.
Is the funding rate a fee paid to the exchange?
No. Funding flows between traders, from one side of the book to the other. The exchange only calculates and routes it. Your real costs to the exchange are the taker and maker fees, which are separate.
Can I keep the funding payment without taking price risk?
Yes, that is the idea behind delta-neutral funding arbitrage: pair a long and an equal short so price moves cancel and you keep the funding spread. Net profit is that spread minus fees and slippage on both legs.
See funding rate live across 49 exchanges.
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