There’s one term you can’t avoid when trading perpetual contracts: the funding rate. It’s settled every 8 hours, and is money paid between longs and shorts
to one another. The exchange just collects and distributes it; it doesn’t make money from it.
【How it works】Perpetual contracts have no settlement date, so how do their prices stay in line with spot prices? The answer is the funding rate:
When the contract price is higher than the spot price (bullish sentiment is strong) → the funding rate is positive → longs pay shorts;
When the contract price is lower than the spot price (sellers have the upper hand) → the funding rate is negative → shorts pay longs.
The money changes hands between the two sides, pulling the contract price toward the spot price.
[The cost] Don’t underestimate a payment every 8 hours: annualized, the rate can reach tens of percent when it’s high.
If you keep paying a high rate while going long, even if you get the direction right, your profits will still be quietly eaten away.
[A practical habit] Check the current rate before opening a position. When the rate is highly positive, chasing longs means you’re working for short sellers
; at extremely negative rates, chasing shorts is the same. Funding rates aren’t directional indicators, but they are a cost—and that cost
affects the cost-effectiveness of your trade.
What do you think? Share your experience in the comments.