Funding Rate

Funding rate is a periodic payment between long and short perpetual holders that pulls the perpetual toward spot. When the perpetual sits above spot, more longs than shorts, positive funding makes longs pay shorts. That encourages shorts and discourages longs. When below spot, shorts pay longs. Settlement is often every 8 hours. People quote per-period percents and also annualize them.

Extreme funding is a positioning signal. Very high positive funding, 20%+ annualized, means crowded longs and a violent unwind risk. Deeply negative funding means crowded shorts. Cash-and-carry is long spot, short perpetual, to collect positive funding with little delta. Cross-exchange funding arb trades rate gaps.

Historically funding has been positive on average, which matches a long bias in crypto. Funding rate is a periodic payment exchanged between long and short perpetual futures holders that anchors the perpetual price to the underlying spot price through incentive alignment.

Funding is typically settled every 8 hours, with the rate determined by the premium/discount between perpetual and spot prices. Rates are usually quoted as percentages per period but often discussed as annualized figures for comparison. Savvy traders monitor funding as a sentiment indicator and trading opportunity. If the perpetual trades above spot, longs pay shorts.

That payment is the funding rate. It is how the contract stays near the index.