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What is a Funding Rate?
What is a Funding Rate?
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Written by Axia
Updated over a week ago

What is a Funding Rate? (futures)

Since there is no expiration on contacts within the Perpetual Futures market, the exchange uses this to ensure that futures prices and index prices converge on a regular basis, using the Funding Rate.

A funding rate is a repetitive/periodic payment that is made to traders, Basically, traders on either side of a trade (short/long) pay this to each other to help the price stay close to the index price. This avoids the situation where there are too many longs or shorts open and that forces the price to sway away from the spot/index price.

Funding rates are defined by fixed intervals. It is an amount that changes every 8 hours and is only exchanged between traders. The funding rate is paid directly from long traders to short traders, or vice versa.
If you close your position prior to the funding exchange then you will not pay or receive funding.

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