Funding Rate
A periodic payment exchanged between longs and shorts on perpetual futures to keep contract prices anchored to spot.
When the perpetual trades above spot, funding is positive and longs pay shorts; below spot, funding is negative and shorts pay longs. This incentivizes convergence toward the index price.
If BCH-PERP trades above spot with +0.01%/8h funding, long positions pay shorts every 8 hours until the premium narrows.
Funding accumulates over time and can materially impact PnL. Spikes often occur during extreme sentiment, creating opportunities for contrarian strategies.
A trader avoids paying high positive funding by switching from a long perpetual to spot BCH, reducing carry costs.
Related Terms
Futures
→A derivatives contract to buy or sell an asset at a predetermined price at a future date; in crypto, perpetual futures (no expiry) are most common.
Cryptocurrency Exchange
→A platform that facilitates the buying, selling, and trading of cryptocurrencies. Exchanges can support crypto-to-crypto or crypto-to-fiat transactions and serve as crucial infrastructure in the digital asset ecosystem.
Perpetual Swap
→A derivative similar to a futures contract but without expiry, kept near spot via funding payments.
Leverage
→Leverage uses borrowed funds to increase position size, amplifying both gains and losses.
All terms and definitions may update as the Cryptionary improves.
