What it is
Perpetual futures contracts, unlike traditional futures, do not expire. To keep their price anchored to the underlying asset's spot price, a funding rate mechanism is employed. This rate is calculated based on the difference between the perpetual contract price and the spot price. If the perpetual trades above the spot price, long position holders pay short position holders; if it trades below, shorts pay longs. Payments occur typically every eight hours.
Traders monitor funding rates to gauge market sentiment and potential volatility. A positive funding rate indicates that long positions are dominant and willing to pay shorts, suggesting bullish sentiment. Conversely, a negative rate signals bearish sentiment. High funding rates can make holding long positions expensive, potentially triggering liquidations if traders cannot cover the payments, especially during periods of high leverage.
Why it matters
Understanding funding rates helps you assess market sentiment and the cost of maintaining leveraged positions in perpetual futures, which can impact your trading strategy.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice