Funding rate
The funding rate is a periodic payment between traders holding long and short positions on perpetual futures. Perpetual contracts never expire, so the exchange uses funding to keep the contract price close to the spot price of the coin.
How it works
At fixed funding times, every open position either pays or receives funding:
- When the rate is positive, longs pay shorts. This usually happens when the contract trades above the spot price.
- When the rate is negative, shorts pay longs.
The payment is the position's value multiplied by the rate. Only positions open at the funding time pay or receive it. The rate and the funding schedule are set by each exchange and change over time.
Why it matters
For short trades of a few hours, funding is usually small. For positions held for days on the paying side, it can take a noticeable share of the profit, or add to it on the receiving side. A futures backtest that leaves funding out flatters long-held positions.
On Algonney
Backtests on USDT perpetuals apply funding at each funding time, paid or received depending on the side and the rate, and every trade shows its funding. Paper and live bots record the funding of each position in the same way, so test and live results can be compared. Spot trading has no funding.
Related: leverage, liquidation, Spot vs futures and Futures trading bot.