Glossary
Funding rate
The funding rate is a periodic payment between long and short holders of a perpetual futures contract that keeps its price near spot. When it is positive, longs pay shorts; when negative, shorts pay longs. It passes between traders, not to the exchange.
Also called Funding, Funding fee, Funding payment, Perpetual funding
See also
The funding rate is a periodic payment between the long and short holders of a perpetual futures contract, set so the contract keeps trading close to spot. When it is positive, longs pay shorts; when negative, shorts pay longs. The money moves from trader to trader: Binance, for one, says it charges no fee on funding payments.
It exists because a perpetual futures contract never expires. A dated future converges to spot on settlement day; a perpetual has none, so funding does the pulling. Traders also call it the funding fee, the funding payment or perpetual funding.
From a BitMEX swap to an academic model
According to MarketsWiki, the periodic funding mechanism arrived with BitMEX’s XBTUSD perpetual swap in May 2016, designed by Arthur Hayes partly from foreign-exchange swap conventions.
In “Fundamentals of Perpetual Futures”, first posted in December 2022 and revised in September 2026, He, Manela, Ross and von Wachter derive no-arbitrage prices for perpetuals. They stress that convergence to spot is not guaranteed, and find gaps larger in crypto than in currency markets, though shrinking.
How the funding rate is calculated on Binance and Hyperliquid
Binance and Hyperliquid both build the rate from a premium index, which measures how far the perpetual trades from the spot index, plus a small interest component. Binance’s USD-M documentation gives the 8-hour formula as F = P + clamp(I − P, 0.05%, −0.05%).
- P, the premium index, compares the impact bid and ask (where a sizeable order would fill) with the price index, sampled every 5 seconds and averaged over the period.
- I, the interest rate, is 0.01% per 8 hours by default (0.03% a day).
- If the premium sits within 0.05 percentage points of I, the rate settles at exactly 0.01%.
- Settlement runs at 00:00, 08:00 and 16:00 UTC, though a contract that hits its cap or floor can switch to hourly.
The payment is the position’s nominal value (mark price times size) multiplied by the rate, and only positions open at the funding timestamp pay or receive.
Hyperliquid uses the same baseline but pays every hour, at one eighth of the 8-hour rate, capped at 0.5% an hour. It values positions at an oracle price, a liquidity-weighted median of exchange spot prices, not the mark price.
A worked example: 10,000 USDT long
Take a hypothetical 10,000 USDT long at the baseline +0.01% per 8 hours, the rate when the premium is zero.
| Rate per 8 h | Per interval | Per day (×3) | Per year (×365) | Share of 10,000 |
|---|---|---|---|---|
| +0.01% | 10,000 × 0.0001 = 1.00 USDT paid | 3.00 USDT | 1,095 USDT | 10.95% |
| +0.03% | 3.00 USDT paid | 9.00 USDT | 3,285 USDT | 32.85% |
| −0.02% | 2.00 USDT received | 6.00 USDT | 2,190 USDT | 21.9% |
On Hyperliquid the baseline works out to 0.0001 ÷ 8 = 0.00125% an hour, so the same long pays 0.125 USDT every hour and 3.00 USDT a day. The yearly figures assume a constant rate and no compounding, which never happens. Hyperliquid’s own documentation quotes the baseline as 11.6% a year paid to shorts, compounded hourly.
Leverage does not change the payment, only its weight: at 10x on 1,000 USDT of margin, 3.00 USDT a day is 0.3% of margin daily.
Positive and negative funding rates: what they tell you
A positive funding rate means the perpetual trades above the index and longs pay to stay in; a negative one means shorts are the crowded side. It is the price of leverage, not a forecast, and it can persist. Ethena says its longest positive streak, in three years of data to the end of 2024, ran 176 days, the longest negative one 13.
Traders often read it alongside open interest: rising positions with high funding point to a crowded trade.
Funding rate arbitrage and the Ethena case
The best-known use is cash-and-carry: buy spot, short the same amount of perpetuals, and collect positive funding while the legs cancel price moves. Our guide to delta-neutral strategies sets out what these trades pay.
Ethena hedges its USDe backing this way, so it earns or pays funding, with staked-ETH income of about 3% a year as a buffer. It says the combined return was negative on 17.5% of days for ETH and 15.9% for BTC over that period, and keeps a reserve fund for them.
Limits of the funding rate
The rate changes every interval and can flip sign, so annualised figures are extrapolations. Intervals, caps and reference prices differ by venue: the contract page of your exchange beats any general rule. Funding does nothing to reduce liquidation risk.
In the US, regulated perpetuals are new. The CFTC’s policy statement of 29 May 2026 describes them as contracts that rely on a periodic funding rate instead of an expiry date, and the US perpetuals Kraken offers through Bitnomial pay funding every 8 hours. When Crypto.com launched 5x perpetuals in its US app in October 2026, its announcement named no funding rate.
Funding rate: questions readers ask
What does a negative funding rate mean?
Short holders pay long holders at each settlement, because the perpetual trades below the spot index. A long then earns funding instead of paying it. The rate can turn positive at the next interval, so a negative reading describes positioning, not where the price will go.
How often is the funding rate paid?
It depends on the venue. Binance settles USD-M contracts every 8 hours by default and moves a contract to hourly settlement once it hits its cap or floor. Hyperliquid pays every hour. You pay or receive only if your position is open at the funding time.
Is the funding rate a trading fee?
No. Funding passes directly between long and short holders, and Binance says it charges nothing on it. Maker and taker fees, and liquidation penalties, are separate charges. Traders still say “funding fee”, which explains the confusion, but the exchange keeps none of the money that changes hands at settlement.
Is funding rate arbitrage profitable?
It earns money while funding stays positive, by holding spot and shorting the perpetual, and loses when funding turns negative. Ethena, which backs USDe with this trade, says the combined return was negative on 17.5% of days for ETH in its data to the end of 2024. Trading fees and exchange risk also cut into gains.