Funding rate

The funding rate is a periodic payment exchanged directly between holders of long and short positions in a perpetual futures contract, used to keep the contract price aligned with the underlying spot price. When the perpetual trades above spot, longs typically pay shorts, discouraging further buying; when it trades below, shorts pay longs.

The rate is set by a formula based on the gap between the contract and spot prices, not charged by the venue as a fee. Payments occur at fixed intervals, often several times a day. A common misconception is that funding is an interest charge on borrowed money; it is a balancing transfer between traders on opposite sides.