Funding Rates

Goal: Read a funding rate, know who pays whom, and use it as a crowd gauge.

Funding is the cable that ties a perp to spot. Without expiry, nothing forces the contract price to converge to the real price — so the market does it with periodic payments between traders.

The rule. When the perp trades above spot, funding is positive: longs pay shorts. Below spot, negative: shorts pay longs. The crowded side pays the other side to take the opposite exposure, dragging the perp back toward reality. Payments occur on a fixed cycle (commonly every 8 hours) as a percentage of your notional — not your margin.

Why a trader at the desk cares

It is a cost of carry. At 0.01% per 8h, a held long pays ~0.03% of notional per day. On 10x leverage that is 0.3% of margin per day just to exist. Multi-day holds need the move to outrun the rent.

It is a crowd gauge. Extreme positive funding = longs are crowded and paying heavily for the privilege. Extreme negative = shorts crowding. You learned in concept what happens to crowded sides at structural extremes — they become fuel. Funding spikes near highs and lows are a sentiment reading the chart cannot show you.

Funding alone is not a signal. It is context — the system you will study in this academy scores structure, not funding. But knowing who is paying whom tells you which crowd is leaning, and crowds at extremes are the ones that get hurt.

Reading it on the terminal

The terminal surfaces the current rate and the next funding timestamp per market. Before any hold that crosses a funding time, know your side's bill.

Takeaways

▸ Positive funding: longs pay shorts. Negative: shorts pay longs. Paid on notional.
▸ It is rent — leverage multiplies the rent relative to your margin.
▸ Extreme funding marks the crowded side. Context, not a signal.

Checkpoint

Answer all questions correctly to complete the lesson. Misses reset for another pass — no penalty.

1. Perp trades above spot. Who pays?

2. Funding is charged on:

3. Deeply negative funding usually means: