The funding rate is the recurring payment between the long and the short side of a perpetual contract, and on most venues it is the largest single cost of holding a position. When the rate is
The funding rate is the recurring payment between the long and the short side of a perpetual contract, and on most venues it is the largest single cost of holding a position. When the rate is positive, longs pay shorts; when it is negative, the flow runs the other way. Settlement usually takes place every eight hours, and the calculation is simple: position size multiplied by the rate for that interval. Anyone using leverage pays this charge on the full notional value of the position, even though only a fraction of that sum is their own money.
That is where the misunderstanding starts, and it is the reason this article exists. A rate of 0.01 percent per interval sounds like nothing at all. Annualised, it works out at almost 11 percent of the notional value, and at ten times leverage that is the equivalent of your entire stake. A trade that gets the direction of Bitcoin right can still end the month in the red because of this charge alone.
This guide explains how the funding rate comes about, how to calculate your own payment, what the rate tells you about market sentiment, and which levers genuinely bring the cost down.
A perpetual future, or perp for short, is a derivative on a price with no expiry date. That design creates a problem of its own. A conventional futures contract expires and settles at a closing price, which inevitably pulls its price back towards the spot market. A contract that never expires has no such anchor. Left to itself, it could trade at any distance above or below the spot price.
The funding rate is that anchor. The rate is not a fee the venue keeps for itself; it is a payment between market participants, in which the more expensive side pays the cheaper one. If the perp trades above the spot price, holding a long position becomes steadily more expensive and holding a short position steadily more rewarding. That economic incentive pushes the contract price back towards spot. Bybit describes exactly this function in its documentation on the funding rate.
Two terms are needed here. The mark price is the reference price a venue uses to value your position and to trigger liquidations; it is derived from the spot market across several exchanges and is insulated against brief swings in the venue's own order book. The contract price is the price at which the perp is trading at that moment. The gap between the two is the raw material of the funding rate.
The major venues settle mostly in eight-hour steps, frequently at 00:00, 08:00 and 16:00 UTC. Some platforms and some individual contracts settle hourly, which makes each payment smaller without changing the total. Which interval applies to your contract is stated in the venue's contract specification, and it is the first figure to look up before holding anything for longer than a session.
The settlement logic matters just as much. Only traders holding an open position at the moment of the timestamp pay or receive anything. There is no pro-rata calculation for the time between two settlement points. Open a position two minutes before the timestamp and you pay the full rate. Close it two minutes beforehand and you pay nothing, even after holding the position for almost eight hours.
For positions that are closed within a single interval, funding is not a cost factor at all; there, trading fees and the spread decide the outcome. For anything held overnight or across several days, funding is often the dominant item. The metric therefore belongs in the same preparation as your liquidation threshold, and we have already shown how to read it alongside open interest as a market signal using a concrete Bitcoin example.
Settlement lands precisely on the timestamp: close two minutes earlier and the payment disappears entirely.
The formula the major venues use has two parts. The premium index measures how far the contract price sits above or below the mark price, weighted across the depth of the order book rather than taken from a single quote. The interest component stands for the theoretical cost of holding capital in one currency instead of the other; in its introduction to funding rates, Binance gives a standard value of 0.03 percent per day for this, which is 0.01 percent per eight-hour interval.
The two are combined through a capped difference: the premium index is added to the deviation between the interest component and the premium index, with that deviation limited to a narrow corridor of typically plus or minus 0.05 percent. In calm markets the rate therefore oscillates around the interest value. In heavily one-sided markets the premium index dominates, and the rate can run all the way to the upper limit of the contract in question.
Those upper limits differ considerably from venue to venue and from contract to contract. For you that means the rate you see in an exchange app is a value for one interval, on that specific venue, for that specific contract. It cannot be transferred to other platforms, and it does not hold for the next interval either, because it is recalculated continuously. Until settlement, the figure on display is an estimate.
The calculation needs three figures: the notional value of the position, the rate for the interval, and the number of intervals you hold the position for. The formula is: payment equals notional value multiplied by the funding rate. The decisive point is that the notional value of the position is meant here, not the margin you have posted.
Worked example: you hold a long position with a notional value of $10,000. The funding rate stands at plus 0.01 percent per eight-hour interval.
If the rate stands at plus 0.05 percent per interval, which happens in strongly bullish phases, the same $10,000 costs you $5.00 per interval, $15.00 a day and a good 54 percent of the notional value over a year. A negative rate reverses the direction: as a long holder you then receive a credit.
For your own preparation it pays to convert the rate into a daily figure and set it next to your expected holding period. A position you intend to hold for two weeks carries roughly 0.42 percent in costs on the notional value at 0.03 percent a day, before the price has moved at all. That number belongs in your target setting, so that your price target actually covers the cost.
Because the rate arises from the gap between the contract price and the spot price, it is a measure of how one-sided positioning has become. A persistently and clearly positive rate shows that the long side is willing to pay for its leveraged exposure. A negative rate shows the opposite. Analysts read a sentiment picture into this, and some derive risk warnings from it: heavily one-sided positioning can trigger liquidations during a sell-off that then amplify the sell-off itself.
Two caveats belong with that. First, the rate is a state reading and not a forecast; historically, high rates have accompanied both price declines and further gains. Second, it is a value for one venue. The picture only becomes meaningful once several large platforms point in the same direction while open interest rises at the same time. Taken on its own, the funding rate is useful for the cost calculation, and not for a statement about where the price is going.
A small amount per interval and a substantial one over weeks: funding takes effect through time rather than through any single payment.
The funding payment is measured against the notional value of the position, while your return is measured against the capital you have put up. That difference is the most important sentence in this article. On the $10,000 notional from the example, at ten times leverage, you post $1,000 in margin. The $3.00 of funding per day then amounts to 0.3 percent of your own capital, every day, regardless of where the price goes.
Held for a month, that is around nine percent of your stake; over a quarter, more than a quarter of it. At a rate of 0.05 percent per interval and the same leverage, the burden comes to roughly 1.5 percent of your equity per day. A position like that has to move substantially in your favour just to break even on costs, and it does so under leverage that brings the liquidation threshold uncomfortably close.
From that follows a plain rule for practice: the higher the leverage and the longer the intended holding period, the more important it is to check the funding rate before you enter. For a position meant to sit for weeks, an open-ended leveraged contract is often the most expensive instrument available. Which venues offer which contracts on which terms is set out in our comparison of perp DEX platforms; what separates such a platform from a conventional exchange is explained in our article on what a perp DEX is.
Several approaches work, and they do not rule each other out:
The last point is the most effective and the most frequently overlooked. A perp is a tool for short horizons and for hedging. For a position held over months it carries costs that a spot purchase does not, and it carries a liquidation risk that a spot purchase does not have either.
Access is the first hurdle European retail investors run into. Venues providing crypto-asset services to customers in the EU have required authorisation since the MiCA regulation came into force, and open-ended leveraged contracts in the form common outside the EU are usually not part of what authorised providers offer to retail clients. Anyone in Germany who wants leveraged exposure to prices will therefore mostly find it at supervised brokers with their own products, whose terms differ from those of a perp; our comparison of crypto brokers gives an overview.
It is wiser to keep your distance from offers with no recognisable authorisation that nevertheless advertise to retail clients in your own language: in a dispute there is no supervisory body to turn to, and deposits sit outside the European legal framework. Whether a provider holds a licence can be checked in the public registers of the supervisory authorities, and that check belongs before the first deposit.
For tax purposes, perpetual futures are not coins held as private assets. Under German income tax law, gains from forward transactions count as investment income and therefore do not fall under the private disposal transactions of section 23 of the Income Tax Act. The one-year holding period, which makes a gain on a directly purchased coin tax-free once it has elapsed, does not exist for these contracts.
Because the rules on offsetting losses from forward transactions have been changed several times in recent years, and because the classification of an individual product depends on how the contract is structured, this is the point to clarify with a tax adviser before your first trade. Foreign venues generally do not issue a German tax report, which is why you should archive your own statements, funding payments included.
(As of September 25, 2026. This article is not investment advice. Prices and fee structures change; check the terms with the provider before you buy.)
