Perpetual Futures Basics Series · Part 2 · 2026
The Complete Guide to Funding Rates: Who Pays Whom, How Often It Settles, and How to Work Out Your Holding Cost
Before you read: this part assumes you already know what a perpetual contract is and the difference between notional value and margin. If not, start with part one of the series, Perpetual Futures for Beginners. Every rate in this article is an example number used to demonstrate the calculation; none of them is any exchange's actual rate at any point in time.
The funding rate is the "quietest" cost in perpetual futures. It doesn't show up when you place an order or when you close one; while you're holding, every few hours it quietly adds a line to your account ledger. If you hold for a few minutes you can ignore it. If you hold for days or weeks, it can end up bigger than your trading fees. This article covers it start to finish: why it exists, who pays whom, how to calculate it, what counts as high, and what it means for long holding periods.
1. Why Funding Rates Exist
A perpetual contract has no expiry date. A traditional delivery future must settle at the spot price on expiry day, and that "convergence at expiry" naturally ties the contract price to spot. Perps took away the expiry, so they need a different tether.
That tether is a mechanism that makes the side that's drifting pay. If the contract trades above spot, more people want to be long than short, so longs pay shorts at regular intervals. Holding longs gets more expensive and some people close them; holding shorts gets a subsidy and some people open them, so the contract price is pushed back toward spot. The reverse works the same way.
The exact formula differs by exchange, but it's roughly two parts: the contract's premium over the spot index, plus an interest component set by the exchange, with upper and lower caps applied. You don't need to calculate the rate yourself; the exchange shows the "current rate" or "predicted rate" live on the contract page. What you do need to be able to calculate is how much money that rate means on your position.
2. Who Pays Whom
| Rate | Usually means | Longs | Shorts |
|---|---|---|---|
| Positive (+) | Contract above spot, longs crowded | Pay | Receive |
| Negative (−) | Contract below spot, shorts crowded | Receive | Pay |
Three points that are easy to misread:
- • It is not an exchange fee. Funding moves between long and short holders; the exchange only handles the settlement and usually takes no cut.
- • Only the position at the settlement moment counts. You pay or receive only if you're holding at that instant. Close before settlement and you neither pay nor receive for that period. A short-term trade held for a few hours that never crosses a settlement time may incur no funding at all.
- • PnL and funding are two separate ledgers. Your long may be in profit while you pay funding every 8 hours; your short may be losing while you collect funding. To judge a strategy's results you have to add the two ledgers together.
3. How Often It Settles
The most common schedule is every 8 hours, 3 times a day. But that's not an industry-wide rule:
- • Within the same exchange, different pairs can have different intervals; 4 hours and 1 hour are also common;
- • An exchange may adjust a pair's settlement interval or rate cap during volatile markets;
- • The exact settlement times (which hour on the clock) differ from exchange to exchange.
The only reliable source is the "Funding rate", "Settlement interval" and "Next funding" shown on the contract details page for that pair on the exchange you use. This article doesn't list the intervals for each exchange and pair, because they change, and anything hard-coded would be wrong.
Different intervals create a comparison trap: 0.01% settled every hour and 0.01% settled every 8 hours are completely different costs, with 24 settlements a day versus 3, an 8x gap. Before comparing rates, always convert to a daily or annualized figure first (see section 5).
4. The Calculation: Three Worked Examples
Funding per settlement = Position notional value × Current funding rate
Notional value = quantity × price (usually the mark price at settlement), not margin
Example 1: a long in a calm market
Holding a 0.1 BTC long with a mark price of 100,000 USDT gives a notional value of 10,000 USDT. Rate +0.01%, settled every 8 hours.
Per settlement: 10,000 × 0.01% = 1 USDT (paid); 3 a day = 3 USDT; holding 30 days is about 90 USDT.
(The 30-day figure assumes the rate and price stay constant; in reality both change every period.)
Example 2: the same position, rate rises to +0.1%
Per settlement: 10,000 × 0.1% = 10 USDT; 30 USDT a day; 7 days = 210 USDT.
If this position is at 10x leverage, the margin is 1,000 USDT, so 30 USDT a day eats 3% of your margin every day, 21% in a week, without price moving at all.
Example 3: a short under a negative rate
Holding a short with 5,000 USDT notional value, rate −0.02%, settled every 8 hours.
A negative rate means shorts pay longs: per settlement 5,000 × 0.02% = 1 USDT (paid), 3 USDT a day.
At the same rate, someone holding a long receives 1 USDT each time.
Example 2 is the one this section most wants you to remember: funding is charged on notional value, so the higher your leverage, the larger it is as a share of margin. For the same 10,000 USDT position, at 2x the 30 USDT a day is only 0.6% of the 5,000 margin; at 20x it's 6% of the 500 margin.
There's also a hidden effect: in isolated margin mode, some exchanges settle funding directly out of that position's margin. As the margin is chipped away, the liquidation price creeps closer to your entry price, so the position gets nearer to liquidation even though price hasn't moved. How liquidation price relates to margin is in part three of the series, How to Calculate Liquidation Price.
Work out funding for your own position
Enter the notional value, rate and settlement interval, and the calculator gives you the per-settlement, daily and N-day cumulative amounts, plus the share of margin.
5. Annualized Intuition: Why a Small-Looking Rate Isn't Small
0.01% looks negligible. Convert it:
Settlements per day = 24 ÷ settlement interval (hours)
Daily rate = rate per period × settlements per day
Annualized rate ≈ daily rate × 365 (on notional value, simple multiplication, no compounding)
| Rate per period | Interval | Daily | Annualized (notional) | Annualized as % of margin at 10x |
|---|---|---|---|---|
| 0.01% | 8 hours | 0.03% | 10.95% | 109.5% |
| 0.01% | 4 hours | 0.06% | 21.9% | 219% |
| 0.05% | 8 hours | 0.15% | 54.75% | 547.5% |
| 0.1% | 8 hours | 0.3% | 109.5% | 1,095% |
The last column looks scary, but it's just a bigger version of example 2 in section 4: the same notional value with only a tenth of the margin means the same funding is ten times as large relative to margin. In reality, rates don't sit at one level for a whole year, and they flip between positive and negative, so this table is a sense of scale, not a forecast: it shows why holding a long for a year and holding a long for a day are two completely different cost structures.
On many exchanges, when the market is calm, rates on major pairs often sit at a fairly low positive value near the interest component; the exact baseline depends on each exchange's published rules. In a market with a long-running bullish bias, longs as a group are net payers of funding, which is a real cost of holding a futures long over holding spot for the long term.
6. What Extreme Rates Are Telling You
The funding rate is a public, real-time sentiment indicator that traders vote on with real money:
Clearly positive for a long time
Longs are willing to pay a high price to stay in: longs are crowded and leveraged longs are piling up. Once price pulls back, liquidations of those positions can feed on each other and amplify the drop.
Clearly negative for a long time
Shorts are crowded and paying to stay in. Once price bounces, shorts are forced to buy back (a short squeeze), and the rally can be amplified in the same way.
But it is not an entry signal. A rate can sit at an extreme for a long time, and price can keep running in the crowded direction. "The rate is too high, so I should short" reasoning keeps paying funding and keeps losing in a trending market. A sensible use is this: when an extreme rate shows up, check your own leverage and distance to liquidation rather than betting on direction because of it.
Another common thing to watch is altcoins and newly listed contracts: their rates usually swing far more than the majors', and it's not unusual for a single-period rate to run well above normal, with shorter settlement intervals too. For positions in these contracts you need to watch funding period by period, and you can't estimate it from BTC experience.
7. What It Means for Bots That Hold for Days
Automated strategies often hold longer than a manual scalp: a layered position may wait several days to get back to its take-profit level, and a trend strategy's cycle can last from days to months (for example, the durations spelled out in the Extreme Series risk guide). The longer you hold, the more settlement points you cross, and funding goes from loose change to a line item. To understand it, hold on to three points:
1. Hedge mode partly hedges funding
Long and short positions in the same pair settle at the same moment at the same rate, one side paying and the other receiving, so the net is: net funding ≈ rate × (long notional − short notional). Example: rate +0.05%, long 8,000 USDT, short 3,000 USDT gives a net payment of (8,000 − 3,000) × 0.05% = 2.5 USDT per period. In the live statistics CoinTech2u has published, 96.5% of strategies run in hedge mode, so for strategies like these what actually generates funding is the difference between the long and short sides, not the size of each side.
2. Adding to a position amplifies funding
After layered add-ons the notional value gets bigger and each period's funding grows in proportion, and the times you need to add are often when the position is going against you and the holding period is being stretched. Put the two together and the deepest, longest-held position also pays the most funding. When you evaluate a strategy, look at its funding ledger in exactly that situation, not at an average.
3. Reconcile against your exchange's ledger
The bot trades through an API in your own exchange account, and funding is settled directly by the exchange. Every payment is on record in the exchange's funds ledger or statement (usually labeled "funding fee"). When you assess your real results over a period, add up realized PnL − fees ± funding and treat your exchange account's data as the source of truth.
One caveat: this section is about how funding affects the books of long-held positions. It does not mean any strategy adjusts its entries based on funding rates. Whether and how CoinTech2u's strategies take funding rates into account isn't described in our public documentation, and we won't speculate here.
8. FAQ
Q: If I open a position one minute before settlement, do I pay the full period's funding?
On exchanges that settle at fixed times, yes. Funding only looks at whether you hold a position at the settlement instant; it isn't prorated by how long you held. Conversely, close one minute before settlement and you don't pay for that period. That's why short-term traders sometimes deliberately avoid settlement times. For positions held for days, the trick is meaningless.
Q: Can I make money just by collecting funding?
There's an approach called "funding arbitrage": buy spot and open an equal-sized futures short at the same time, so the price moves cancel out and you only collect the positive rate. But it isn't risk-free: rates can turn negative, the margin and liquidation risk on the two legs have to be managed separately, and fees and tied-up capital eat most of the return. When you hear "guaranteed funding income", work through each of those items first.
Q: Can funding get me liquidated?
A single period generally won't, but over time it can push you close: in isolated margin on some exchanges funding is deducted from the position's margin, so margin shrinks and the liquidation price moves closer; in cross margin it comes out of account equity, which thins the buffer shared by all positions. High leverage + a high rate + a long holding period is the worst combination of the three.
Q: Which matters more, funding or trading fees?
It depends on how long you hold. If you trade often and hold briefly, fees dominate; if you trade rarely and hold long, funding can overtake them. Running your own typical positions through the fee calculator and the funding calculator will tell you more than any generic rule.
Further Reading
- • Series part 1: Perpetual Futures for Beginners: How They Differ from Spot, How Margin and Leverage Work, and What Mark Price Is
- • Series part 3: How to Calculate Liquidation Price: Isolated Margin Formulas, Worked Examples, and How to Choose Between Cross and Isolated
- • What Are US Stock Perpetual Futures? (Section 4: the funding rate is the "anchor" of a perp)
- • The Complete Guide to Crypto Futures AI Trading Bots
- • Glossary: funding rate
This article is for explanatory purposes only and is not investment advice. All rates in this article are example numbers used to demonstrate the calculation; funding rates, settlement intervals and calculation rules are as published by each exchange.