What is Funding Rate?

A funding rate is the recurring payment exchanged between long and short traders on a perpetual futures contract. Because a perpetual never expires, the funding mechanism is what keeps its price anchored to the underlying spot price.

When the perpetual trades above spot, the funding rate is positive and longs pay shorts; when it trades below spot, the rate is negative and shorts pay longs. Each exchange computes its own rate and settles it on its own schedule (commonly every 1, 4, or 8 hours).

Because every venue sets funding independently, the same asset can pay a very different rate on two exchanges at the same moment — which is the basis of funding-rate arbitrage.