Funding Rate
trading · derivatives
A funding rate is the periodic payment between long and short perpetual futures positions that helps anchor price to spot.
When a perpetual futures contract trades above spot, funding is usually positive and longs pay shorts; when it trades below spot, funding is usually negative and shorts pay longs. This incentivizes convergence toward the index price.
Funding accumulates over time and can materially affect profit and loss, especially with leverage. Spikes often occur during extreme sentiment, but they can persist longer than traders expect.
Related terms
Futures
→Futures are derivatives for long or short exposure to an asset; crypto markets commonly use perpetual futures with no expiry.
trading · derivatives
Cryptocurrency Exchange
→A cryptocurrency exchange is a platform for buying, selling, or trading digital assets through crypto or fiat markets.
trading · exchange · platform
Perpetual Swap
→A derivative similar to a futures contract but without expiry, kept near spot via funding payments.
derivatives · trading
Leverage
→Borrowed or synthetic exposure that increases position size, amplifying both gains and losses.
markets · derivatives