Funding Rate

Definition

The Funding Rate is a periodic fee exchanged between traders in perpetual futures contracts to ensure that the contract price stays close to the spot price of the underlying asset. It reflects the balance between long and short positions in the market and serves as an incentive mechanism to maintain price alignment.

Key Points:

• When Positive: Long traders pay short traders

• When Negative: Short traders pay long traders

• Frequency: Funding rates are typically exchanged at regular intervals (e.g., every 8 hours) and vary depending on market conditions.