Understanding what funding fees are and how they are calculated can help you maximize profits, minimize losses, and protect yourself from liquidation risk. More importantly, you can incorporate funding fees into your profit strategies.
This post is designed to help you understand everything clearly and easily with just one read—so take your time and read it through!
If you're someone who thought funding fees are just a kind of "fee" paid or received at certain times in fixed percentages, then you’ve only understood half the concept.
To be blunt, some traders have been liquidated and lost their entire capital simply because of funding fees. So, if you treat them like simple service fees, you might be making a serious mistake.
It’s not a difficult concept at all. In this article, we’ll help you fully understand what funding fees are, how they’re calculated, and when different exchanges apply them.
Table of Contents
What is a Funding Fee?
How to Calculate Funding Fees
Exchange Funding Fee Timings
What is a Funding Fee?
In derivatives (futures) trading, there are two basic choices:
One is the long position, where you bet the price of a coin will go up.
The other is the short position, where you bet the price will go down.
When you take a long or short position, you may have to pay a small percentage of your position value to the trader holding the opposite position. This percentage is called the funding fee.
Now, you might be wondering: "Why should I pay a funding fee?" You're already paying a trading fee—why another one?
The reason the funding fee system exists is to prevent the market from leaning too heavily to one side. Since perpetual futures contracts have no expiration date, traders could theoretically hold one-sided positions indefinitely, which would disrupt market balance and even affect spot prices.
At this point, you’ve probably figured out who pays and who receives the funding fee.
The side with more open positions pays the funding fee to the side with fewer positions.
When the number of long positions > short positions:
→ Long traders pay funding fees to short traders
→ The funding rate appears as a positive value (+)
When the number of long positions < short positions:
→ Short traders pay funding fees to long traders
→ The funding rate appears as a negative value (−)
You can remember it like this:
More longs → Market sentiment is bullish → Funding rate is positive
How to Calculate Funding Fees
Now that you understand the concept, let’s look at how to actually calculate funding fees.
The formula is simple:
Funding Fee = Position Value × Funding Rate
Position Value = Trade amount × Leverage
Let’s do a sample calculation with:
Trade amount: 1,000 USDT / Leverage: 20x / Position: Long
When the funding rate is +0.01%
1,000 × 20 × 0.01% = 2 USDT
→ You pay 2 USDT in funding fees.
When the funding rate is −0.02%
1,000 × 20 × 0.02% = 4 USDT
→ You receive 4 USDT in funding fees.
It’s important to note two things:
Funding fees are amplified by your leverage.
As long as you hold a position, fees are automatically paid or received at every funding interval.
So even small funding rates can build up to significant gains or losses over time.
And if you’re still holding a position when the funding timestamp hits, you’ll definitely want to factor that into your strategy.
When Do Exchanges Charge Funding Fees?
All three apply funding fees at 8-hour intervals, based on Korean time:
01:00
09:00
17:00
If you're only holding a position for a short time, this probably won’t affect you much.
But if you happen to be holding around the time fees are charged, you’ll want to plan your strategy accordingly.
Finally, let me share one more way you can get an extra discount on fees.
By signing up through the link provided here, you can receive a 20% discount on Binance trading fees.
It’s a quick and easy way to unlock this benefit—no complicated steps required.
So why not take advantage of it?
📍Binance 20% Fee Discount Sign-Up Link
Today, we’ve gone over the essential concept of funding fees (funding rates) in crypto futures trading—what they are and how to calculate them.
Hopefully, this helps you trade smarter in the derivatives market!