Understanding Funding Rates
Funding rates are the cornerstone of perpetual futures markets. Learn how they work, why they differ across exchanges, and how to read them effectively.
Key Concepts
A funding rate is a periodic payment exchanged between traders holding long and short positions in perpetual futures contracts. It helps keep the perpetual contract price anchored to the spot price of the underlying asset.
Unlike traditional futures with expiration dates, perpetual contracts never expire. Funding rates act as an incentive mechanism: when the contract trades above spot price, longs pay shorts (positive rate), pushing the price down toward spot.
Most exchanges settle funding every 8 hours (3 times per day). Some exchanges like Hyperliquid settle hourly, while others may have different schedules. Rates are typically quoted per 8-hour period for standardization.
How Perpetual Futures Work
Price Discovery
Perpetual contracts track the underlying asset's price through an index price mechanism, typically averaging spot prices from major exchanges.
Funding Mechanism
When the mark price deviates from the index price, funding rates adjust to incentivize traders to bring the price back in line with spot.
Payment Settlement
Funding is paid directly between traders, not to the exchange. The payment amount equals your position size multiplied by the funding rate.
Rate Normalization
8-Hour Standard
To compare rates across exchanges fairly, PerpRates normalizes all funding rates to 8-hour periods. This is the industry standard used by most major exchanges.
Hourly rate to 8-hour: rate_8h = rate_1h * 8
8-hour to APY: APY = rate_8h * 3 * 365 * 100
Example Funding Rates
| Exchange | Asset | 8h Rate | APY |
|---|---|---|---|
| Hyperliquid | BTC | +0.0100% | +10.95% |
| Drift | BTC | -0.0050% | -5.48% |
| GMX | BTC | +0.0080% | +8.76% |
| Aster | BTC | +0.0120% | +13.14% |
Rates shown are examples only. Actual rates change continuously based on market conditions.
Interpreting Rates
- Longs pay shorts every funding period
- Indicates bullish market sentiment
- Perpetual price trading above spot
- Strategy: Go short to receive funding
- Shorts pay longs every funding period
- Indicates bearish market sentiment
- Perpetual price trading below spot
- Strategy: Go long to receive funding
Ready to Learn Arbitrage?
Now that you understand funding rates, learn how to profit from rate differences across exchanges.