---
cover: /images/blog/glossary-crypto-terms.jpg
description: "Funding rate is a periodic payment between long and short perpetual contract holders. Its sign, formula, and settlement schedule depend on the exchange."
tags: ["funding-rate", "perpetual-swaps", "derivatives", "trading-costs", "carry-trade", "market-sentiment", "basis", "crypto-trading"]
---
# Funding Rate

A funding rate sets a periodic payment between holders of long and short positions in a perpetual contract. Exchanges use this mechanism to help keep a perpetual contract near its reference market. The formula and settlement schedule vary by venue and instrument.

## Payment Direction

A positive rate may result when a contract trades at a premium under an exchange's formula, and longs may pay shorts. A negative rate may send payment from shorts to longs. The exchange's contract rules define the sign convention, calculation inputs, and who pays.

Funding is a transfer between eligible positions. It is separate from trading fees, margin interest, and price profit or loss.

## Notional Example

Assume a contract applies a funding rate of 0.01% to $10,000 of eligible notional. The payment is $1 for that settlement period. A real payment depends on the exchange's notional method, position size, rate, and settlement time. The example does not imply an eight-hour schedule or a fixed future rate.

A trader holding a perpetual position across several settlements can add each payment to the position's costs or income. The rate can change before the next settlement.

## Reading Funding Data

Funding can describe the relative price of a perpetual contract and its reference, under the venue's formula. It cannot show the full position distribution or forecast a price move on its own. Compare it with [open interest](/blogs/open-interest-explained), market price, and contract terms.

For more detail on rate calculations and carry costs, see the [Funding Rate Guide](/blogs/funding-rate-guide) and [Perpetual Swaps](/glossary/perpetual_swaps). Compare venue rules in [Bybit's funding-fee documentation](https://www.bybit.com/en/help-center/article/Funding-fee-calculation?category=cd60af6303161fd598) and [Hyperliquid's funding documentation](https://hyperliquid.gitbook.io/hyperliquid-docs/trading/funding).