A perpetual futures contract has no expiry date. Funding is the periodic payment mechanism used to encourage its market price to stay near the underlying spot or index market. The payment passes between long and short positions; it is separate from the trading fee charged when an order fills.
Funding is a periodic payment between traders
Perpetual futures never expire, so exchanges use funding payments to help keep their price close to the spot market. At each settlement, one side pays the other. It is separate from the fee charged when your order fills.
- When funding is positive, longs normally pay shorts.
- When funding is negative, shorts normally pay longs.
- You usually pay or receive only if the position is open when that settlement is assessed.
- Perpetual
- A futures contract with no expiry date.
- Funding rate
- The rate used to calculate the payment between long and short positions.
- Settlement
- The scheduled time when that funding payment is assessed.
Why perpetual futures need funding
Traditional dated futures converge toward spot as expiry approaches. A perpetual contract has no expiry, so exchanges use a funding mechanism to create economic pressure toward the index.
When the perpetual trades at a persistent premium, funding is commonly positive. Longs pay shorts, making long exposure more expensive and encouraging the other side. When the perpetual trades at a discount, funding can turn negative and shorts pay longs.
| Funding sign | Typical payer | Typical receiver |
|---|---|---|
| Positive | Long positions | Short positions |
| Negative | Short positions | Long positions |
| Zero | No payment | No receipt |
How to calculate a funding payment
For a linear perpetual, a simple funding estimate multiplies position notional by the funding rate at each settlement. The sign determines whether that amount is paid or received.
Do not multiply today’s rate by many future periods and treat it as certain. Funding rates can change before every settlement, and some exchanges automatically shorten or lengthen the interval under unusual conditions.
Funding payment = Position notional × Funding rateTotal funding = Sum of each actual notional × actual settlement rateFunding example for a $10,000 position
Assume a $10,000 BTC perpetual position crosses three settlements, each at +0.01%. The long pays and the short receives, assuming the same notional at every settlement.
$10,000 notional · +0.01% · 3 settlements
Each settlement is $1.00. Across three unchanged periods, the long pays $3.00 and the short receives $3.00. Actual totals vary when position notional or settlement rates change.
How funding changes PnL and break-even
Funding is part of realized trading performance even though it is not part of gross price PnL. A profitable price move can produce a smaller net gain after several expensive funding periods. A position on the receiving side can also earn funding while its price PnL is flat or negative.
The break-even exit price therefore moves with every funding payment. A long that repeatedly pays positive funding needs a slightly higher exit price to cover all costs; a short receiving the same funding has part of its cost offset.
Gross PnL − trading fees + funding received − funding paidCan funding affect liquidation?
Yes. In isolated mode, funding may be deducted from isolated position margin when no other balance is available. In cross mode, it can reduce the shared account equity supporting all positions. Either effect moves the account closer to its maintenance requirement.
The risk is most visible in large positions held for many periods during persistently high funding. Always check the next settlement time as well as the current rate.
- Record the funding sign and next settlement timestamp before entry.
- Model more than one rate scenario for multi-day positions.
- Compare funding across venues only after checking contract and index differences.
- Recalculate net PnL after every actual settlement.
- Monitor available margin if funding is being paid from position or account equity.
Funding is not free yield
Receiving funding does not remove market risk. A position can earn a small payment and lose much more from price movement, basis changes, fees, or liquidation. A delta-neutral funding strategy introduces execution, hedge, borrow, transfer, and venue risk.
Treat the displayed annualized number as a translation of the current rate, not a guaranteed annual return. The underlying rate can reverse quickly.
Crypto PnL Calculator
Enter positive or negative funding and the number of settlement intervals to see its effect on net PnL and break-even.
Frequently asked questions
Does the exchange keep the funding fee?
On standard perpetual funding mechanisms, the payment is transferred between paying and receiving positions. Check the venue’s rules because implementation details can vary.
Do I pay funding if I close before settlement?
Normally only positions open at the settlement timestamp participate, but exact snapshot and settlement rules are exchange-specific.
Why did the funding interval change?
Some exchanges adjust settlement frequency when the rate reaches caps or floors or when market conditions become unusual.
Can negative funding be profitable for a long?
A long may receive negative funding, but total profitability still depends on price PnL, trading fees, execution, and the future path of funding rates.
Exchange mechanics and rates can change. These primary references were used to verify the concepts on this page.
Educational information only. Contract rules and account calculations vary by exchange; verify them before trading.