Funding rates, and the cost nobody budgets for
A rate that looks like a rounding error is often more than half your capital per year.
How much do crypto funding rates cost?
Funding is charged roughly every eight hours, so multiply the quoted rate by three then by 365 for the annual cost. A rate of 0.01% per period is about 11% a year, and 0.05% is roughly 55%. On multi-day holds this frequently exceeds all trading fees combined.
Perpetual futures never expire, which creates a problem: without an expiry to force convergence, nothing anchors the contract to the price of the actual asset. Funding is the mechanism that solves it. At regular intervals — typically every eight hours — one side of the market pays the other.
When the perpetual trades above spot, longs are the crowded side and they pay shorts. When it trades below, shorts pay longs. The payment goes directly between traders; the exchange is only the conduit.
Turning a small number into a real one
Funding is like rent on a position. It looks tiny per day, and enormous per year — and most people never add it up.
Funding is quoted per interval, which makes it look harmless. With three payments a day, the annual figure is the quoted rate multiplied by roughly 1,095.
What each rate really costs per year
| 0.01% — the common baseline | ≈ 11% |
| 0.05% | ≈ 55% |
| 0.10% | ≈ 110% |
| 0.30% — extreme | ≈ 328% |
A long held for a week at 0.05% costs about 1% of position value in funding alone. That is often larger than the trading fees people obsess over, and it accrues silently while the position is open.
Funding as a positioning signal
Beyond cost, the rate tells you who is crowded. Persistently high positive funding means leveraged longs are paying continuously for the privilege of staying in — a market where everyone is already positioned in one direction, and where the marginal buyer may already have bought.
That does not mean price must fall. Strong trends can run for weeks with elevated funding. But crowded positioning is combustible: when a decline begins, longs are liquidated, those liquidations sell into the move, and the cascade feeds itself. Read the funding panel alongside the live liquidations panel and the pattern becomes visible in real time.
Practical rules
- Check funding before entering, not after. If you plan a multi-day hold and the annualised rate exceeds your target return, the trade is losing before it starts.
- Compare across venues. The same pair can carry noticeably different funding on different exchanges at the same moment.
- Treat extremes as a warning, not a trigger. Very high funding says the trade is crowded, which means tightening risk rather than reversing blindly.
- For long holds, consider spot. If your thesis needs weeks, funding may cost more than the leverage is worth.
Where to see it
The Preflight funding panel shows current rates for major pairs with the annualised figure calculated for you, straight from the exchange and free. The futures premium panel shows the gap between mark and index price, which is the pressure that produces the funding in the first place.
How the rate is actually set
Funding is not chosen by the exchange. It is calculated from two components: a fixed interest element, and a premium reflecting how far the perpetual is trading from the underlying index.
When the contract trades above the index, the premium is positive and longs pay shorts. When it trades below, shorts pay longs. The mechanism exists to pull the contract back toward spot — traders are paid to take the unpopular side, which restores balance.
This is why funding is a positioning signal as much as a cost. A persistently high rate means the market has been unwilling to correct itself despite continuous payments, which tells you how strongly one side is committed.
The compounding nobody calculates
Cost on a $10,000 position
| 0.01% per 8h | $3 per day · $21 per week · $1,095 per year |
| 0.05% | $15 per day · $105 per week · $5,475 per year |
| 0.10% | $30 per day · $210 per week · $10,950 per year |
The bottom row is worth reading twice. At 0.10% per period, a position held for a year costs more than the position itself. Rates that high do not persist for a year — but they persist for weeks, and a week at that rate is 1.5% of the position gone before price does anything.
Our true cost panel pulls the live rate for your pair and combines it with fees for your intended holding period, so the figure is specific rather than theoretical.
Earning funding instead of paying it
The other side of the trade is a genuine strategy. A cash-and-carry position — holding spot while shorting the perpetual in equal size — is close to market-neutral and collects funding while the rate is positive.
It is not free money, and the risks are specific:
- The rate can flip negative, turning income into cost.
- The short leg needs margin and can be liquidated if collateral is mismanaged, even though the overall position is hedged.
- Fees on both legs eat a meaningful share of a small spread.
- Venue risk applies to both sides simultaneously.
Institutions run this trade at scale, which is precisely why extreme funding rarely persists — the arbitrage closes it.
Funding as a market-wide signal
Read the aggregated view rather than one venue. Our all-exchanges panel shows funding and open interest across Binance, Bybit and OKX together.
- High positive funding with rising open interest is the classic fragile setup: crowded longs, paying to stay, with leverage still building.
- Funding normalising while price holds is healthier — the move is being absorbed rather than levered.
- Negative funding during a decline means shorts are crowded and being paid. Squeezes start here.
- Large gaps between venues are where basis trades live, and they close quickly.
The squeeze radar combines exactly these inputs into a single score, which is faster than reading three panels when you only want the conclusion.
Practical rules
- Check funding before entering any multi-day position. Annualise it and compare with your target.
- Use spot for long horizons. If your thesis needs weeks, funding may cost more than the leverage is worth.
- Compare venues when the position is meaningful.
- Treat extremes as a warning, not a trigger. High funding says the trade is crowded, which means tightening risk rather than reversing blindly.
- Remember funding erodes margin on leveraged positions, moving liquidation closer with every payment.
Common questions
Who receives my funding payment?
Traders on the opposite side of the same contract. The exchange is only the conduit and does not keep it, which is why funding is not listed in fee schedules.
Is funding charged if I close before the payment time?
On most venues, no — funding is settled at fixed intervals, so a position closed before the timestamp pays nothing. Intraday traders often avoid it entirely.
Can funding alone liquidate a position?
Indirectly, yes. Payments are deducted from margin, so a heavily leveraged position with high funding sees its liquidation level creep closer over time even without price moving against it.
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