What Is a Funding Rate? How It Works in Perpetual Futures
Learn how funding rates work in perpetual futures, who pays them, how they affect holding costs, and why their calculation varies by platform.
A funding rate is a periodic payment associated with open perpetual futures positions. It helps keep a perpetual contract close to its reference price. On many venues, a positive rate means longs pay shorts. A negative rate means shorts pay longs. Calculation and settlement rules vary by platform.
NFA. Perpetual futures are leveraged products that carry a high risk of loss.
Why Perpetual Futures Need a Funding Rate
Standard futures contracts expire on a set date. At expiry, the futures price automatically converges with the spot price — that's the settlement mechanism.
Perpetual futures never expire. Without a settlement date, there's no built-in mechanism to keep the perpetual price aligned with spot. Left alone, the two prices would drift apart.
The funding rate solves this. When the perpetual trades above spot, a positive rate makes long positions more expensive to hold — pushing some traders to close longs or open shorts, which pulls the perpetual price back down. When the perpetual trades below spot, a negative rate discourages shorts and incentivizes longs, which pushes the price back up.
The result: perpetual prices stay tethered to spot without ever needing to settle.
Positive vs. Negative Funding Rate
Positive Funding Rate
Negative Funding Rate
When it happens
Perpetual price > spot price
Perpetual price < spot price
Who pays
Longs pay shorts
Shorts pay longs
Market signal
Bullish sentiment, excess long leverage
Bearish sentiment, excess short leverage
Effect
Makes holding longs more expensive → pulls perp price down
Makes holding shorts more expensive → pushes perp price up
A rate near zero means the perpetual and spot prices are closely aligned — neither side is paying much to hold.
How Funding Fees Are Calculated
The funding fee is straightforward:
Funding Fee = Position Size × Funding Rate
Example:
You hold a $10,000 long position
The funding rate is +0.01% (paid every 8 hours)
You pay: $10,000 × 0.01% = $1 per 8-hour interval
Over 3 days (9 intervals): $9 in total funding costs
If the rate were −0.01% with the same long position, you would receive $1 per interval instead.
A few things to note:
Funding intervals vary by platform — common intervals are every 1, 4, or 8 hours. Check the specific interval for each market you trade.
Leverage amplifies funding costs. A 10x leveraged position carries the same dollar cost as a position 10× larger at 1x — because what matters is notional size, not margin size.
The rate changes continuously. It fluctuates with the gap between perpetual and spot prices, so the fee you pay in the next interval may differ from the last.
On AFX, the current funding rate and countdown to the next interval are displayed in the trading interface for every market — including equity, metal, and index perpetuals.
What Does the Funding Rate Tell You About the Market?
Beyond its mechanical purpose, the funding rate is a real-time gauge of market sentiment and leverage.
Think of it as a thermometer for crowd positioning:
High positive (e.g., +0.05%–0.10%+)
Strongly bullish sentiment; high long leverage in the market
Mildly positive (e.g., +0.01%–0.03%)
Moderately bullish; normal market conditions
Near zero (±0.01%)
Balanced positioning; perpetual close to spot
Mildly negative (e.g., −0.01%–−0.03%)
Moderately bearish; more shorts than longs
High negative (e.g., below −0.05%)
Strongly bearish sentiment; heavy short positioning
What high positive funding can signal: A high positive rate can indicate concentrated long positioning. Thresholds differ by asset, venue, and funding interval. Crowded leverage can increase liquidation risk, but funding alone does not predict a price reversal.
This is why experienced traders monitor funding rates alongside price action. A market can be rising but becoming more expensive and risky to trade long at the same time.
Is a Negative Funding Rate Bullish?
This is one of the most searched questions around funding rates — and the answer is: sometimes, yes.
When the funding rate is deeply negative, shorts are dominant. Shorts are paying longs to hold their positions, which means:
There's significant bearish positioning in the market
Shorts face an ongoing cost to maintain their positions
If the price fails to keep falling, those shorts may close — creating buying pressure
In this sense, extreme negative funding can be a contrarian signal: when everyone is positioned short and paying for the privilege, the market may be closer to a bottom than a top.
However, negative funding is not a standalone buy signal:
A fundamentally deteriorating asset can sustain negative funding for extended periods
Funding rates can go more negative before reversing
Always consider price trend, liquidity, and broader context alongside funding data
Use funding rates as one input among several, not as a predictive trigger on its own. (NFA)
Funding Rates vs. Trading Fees
These are different and often confused:
Funding Rate
Trading Fee
Who receives it
The other side of your trade (longs → shorts or vice versa)
The exchange
When it's charged
At each funding interval (while position is open)
At order execution (open and close)
Amount
Varies with market conditions
Fixed percentage set by the platform
Direction
Can be positive or negative
Always a cost to the trader
FAQ
What does the funding rate tell you? The funding rate tells you the balance of demand between long and short traders in the perpetual market. A high positive rate signals crowded long positioning and excess leverage. A high negative rate signals crowded short positioning. Near-zero rates indicate a balanced market where the perpetual price is close to spot.
How do you calculate the funding rate? Your funding fee = Position notional size × Funding rate. For example, a $5,000 position at a funding rate of 0.01% pays or receives $0.50 per interval. The funding rate itself is determined by the platform based on the gap between the perpetual's mark price and the spot index price, usually with an interest rate component added.
Who pays who if the funding rate is positive? If the funding rate is positive, traders with long positions pay traders with short positions. The logic: when the perpetual trades above spot (driving a positive rate), longs are the ones creating the premium, so they pay to compensate shorts for holding the other side.
Who pays the funding rate? The funding rate is paid by traders to other traders — not to the exchange. Which side pays depends on the rate's direction: positive rate → longs pay shorts; negative rate → shorts pay longs. The exchange facilitates the transfer but does not collect it as revenue.
Key Takeaways
A funding rate is a periodic payment associated with open long and short positions
Positive rate: perp > spot; longs pay shorts
Negative rate: perp < spot; shorts pay longs
Funding fee = position notional size × rate (leverage amplifies the dollar cost)
Extreme positive rates signal crowded long leverage and potential fragility
Extreme negative rates can be a contrarian signal — but not a reliable standalone buy trigger
Related guides
What Is a Perpetual DEX? — learn the core mechanics behind on-chain perpetuals.
How to Trade Perpetuals On-Chain — see where to review funding before opening a position.
Trade Stock Perpetuals On-Chain — understand funding when trading stock-linked markets.
Trade on AFX → app.afx.xyz/trade (NFA — perpetual futures carry a high risk of loss. Availability varies by jurisdiction.)
Last updated