Funding

Funding

Where does funding come from and why is it important to consider it?

Who Is This Funding and What Is It Used For?

Funding (Funding Rate) is a periodic payment between participants of the perpetual futures market, aimed at keeping the futures price close to the spot market price.

Important notes:

• funding is paid by market participants to each other

• the exchange is not a counterparty

• funding exists only for perpetual futures

• the standard funding interval is every 8 hours, but depending on exchange rules and market conditions, the funding interval may be reduced

Who Pays Funding to Whom

A futures market participant holds one of two positions: long or short.

• If funding is positive, longs pay shorts

• If funding is negative, shorts pay longs

The size of funding payments depends on position size, funding rate, and payment frequency.

Where Does Funding Come From and Why Is It Needed?

The purpose of funding is to align spot and futures markets. Without funding, a significant gap could form between spot and futures prices. Funding acts as an incentive mechanism that encourages traders to open positions in the direction required to balance prices.

Examples

ANIME token statistics on the OKX spot market

ANIME token statistics on the OKX futures market

On the spot market, the ANIME token trades at 0.008762 USDT, while on the futures market it trades at 0.008187 USDT. The price difference exceeds 5%, so the exchange needs to bring prices closer. To achieve this, the exchange applies funding.
The exchange makes funding negative (-1.5%), so long position holders profit, while short position holders incur losses. In this case, the spot price is significantly higher than the futures price, so the exchange not only set the funding rate to -1.5%, but also reduced the funding interval to 1 hour. As a result, market participants holding long positions in ANIME on OKX receive 1.5% every hour, while participants holding short positions lose 1.5% every hour.

Funding can also be applied in the opposite direction. For example, on KuCoin, the funding rate for the BSU token is positive, and short position holders earn funding payments, while long position holders incur losses.

BSU token statistics on the KuCoin spot market BSU token statistics on the KuCoin futures market

For you, we have prepared a convenient and informative table of funding rates in our service — Funding Rates:

Here you can monitor market sentiment on different coins in real time based on funding rates.

In addition to convenient visualization and filtering by exchanges, this tool can be used for trading with funding rate arbitrage strategies.