Funding Rates Explained: How They're Calculated and Who Pays Whom

Funding rates are the mechanism that keeps a perpetual futures contract's price roughly in line with the spot price of the underlying asset, since perpetuals have no expiry date to force convergence the way traditional futures contracts do.

Why Perpetuals Need Funding at All

A traditional futures contract expires on a set date, at which point its price must converge with spot. A perpetual contract never expires, so without some other mechanism its price could drift indefinitely away from spot. Funding rates are that mechanism: a periodic payment between long and short position holders designed to pull the perpetual price back toward spot.

Who Pays Whom

When the perpetual price trades above spot, longs pay shorts. This makes holding a long position more costly, which tends to discourage new longs and encourage shorts, pushing the perpetual price back down toward spot. When the perpetual trades below spot, the payment flips: shorts pay longs, which discourages shorts and encourages longs, pushing the price back up.

How the Rate Itself Is Calculated

The funding rate typically combines two components: an interest rate difference between the two assets involved, and a premium or discount reflecting the gap between the perpetual price and the spot price. The larger the gap between perpetual and spot, the larger the funding payment tends to be, since a bigger gap needs a stronger pull to close it.

When Funding Is Paid

Funding is exchanged at fixed intervals, commonly every eight hours, between whoever holds long and short positions at that moment. You only pay or receive funding if you hold a position at the exact time it is charged; closing a position before that point avoids the payment entirely.

Funding Rates Are Separate From Trading Fees

Funding payments are exchanged directly between traders holding opposite positions, not paid to the exchange. Bitval's futures fees, 0.03% maker and 0.06% taker, are charged separately when an order executes and apply regardless of which way funding is currently flowing.

Why This Matters for Holding Periods

A position held for a single trade might never encounter a funding payment, while a position held across multiple funding intervals accumulates them, for or against you depending on which side you are on. Bitval displays the current and historical funding rate directly on the futures trading interface, so the cost or benefit is visible before you decide whether to hold a position further.

You can create a Bitval account to see live funding rates on Bitval's futures markets.

This article is for informational purposes only and does not constitute financial advice. Leverage and margin trading carry substantial risk, including losing more than your initial margin.