KoinlyticsA traditional futures contract has an expiry date. On expiry, the price converges to spot. Perpetual futures (perps) never expire. Something else has to keep them tracking spot. That something is the funding rate.
How it works
Every 8 hours (Binance, Bybit, OKX) or every hour (Hyperliquid, dYdX), the exchange calculates the difference between the perp price and the spot index. If perps trade at a premium (longs are aggressive), longs pay shorts. If perps trade at a discount (shorts are aggressive), shorts pay longs.
Reading the funding rate
- Rate near zero. Balanced order flow.
- High positive (+0.05% per 8h and up). Crowded long, longs paying to hold. Historically bearish signal for the next few days.
- High negative (-0.05% and down). Crowded short, shorts paying to hold. Historically bullish contrarian signal.
What you pay
Funding is paid per position size, not margin. A $100,000 long at 0.03% funding per 8h costs $30 per period, or $90 per day. Over a month of consistent 0.03% funding, that is $2,700, which meaningfully changes carry math.
Funding APR conversion
0.01% per 8h = ~11% annualized. 0.03% per 8h = ~33% annualized. 0.05% per 8h = ~55% annualized. Anything above +0.05% or below -0.05% sustained is unusual and worth attention.
The basis trade
Long spot, short perp. When funding is +0.05% and stable, you pocket 55% APR against neutral market exposure. This is one of the oldest crypto trades. Ethena's USDe uses exactly this trade, at scale, to fund its yield.
Where things go wrong
- Funding rate can flip sign in one candle during flash liquidations.
- Basis trade blows up if the short side gets liquidated (fund your margin).
- Exchange risk: your funding accrues but the exchange has your collateral.