What is a funding rate?
A funding rate is the proportion used to calculate funding payments between long and short perpetual positions; funding fees are the actual amounts paid or received. Perpetual contracts have no scheduled expiry. Funding changes the cost of holding either side, encouraging a connection between contract and spot reference prices.
A long gains from rising prices and loses from falling prices; a short has the opposite direction. Under common rules, a positive rate means longs pay shorts, and a negative rate means shorts pay longs.
An example: three settlements
Suppose trader A holds a 1,000 USDT long and B an equally valued short. Both hold positions at all three fee assessments, and assessed position value is 1,000 USDT each time. USDT is the denomination and settlement asset. The figures illustrate the mechanism, not actual rates.
First calculate the amount, then use the sign to determine payment direction:
Funding amount for one period = assessed position value × absolute value of that period’s funding rate
The first rate is +0.01%, giving 1,000 × 0.01% = 0.1 USDT. A pays 0.1 and B receives 0.1. Applying the same calculation:
| Settlement | Hypothetical rate | A (long, USDT) | B (short, USDT) |
|---|---|---|---|
| First | +0.01% | Pays 0.1 | Receives 0.1 |
| Second | +0.03% | Pays 0.3 | Receives 0.3 |
| Third | −0.02% | Receives 0.2 | Pays 0.2 |
| Total | — | Net pays 0.2 | Net receives 0.2 |
A’s net payment is 0.1 + 0.3 − 0.2 = 0.2 USDT. A and B illustrate the two sides, not a requirement to pair these traders permanently. OKX, for example, organizes transfers between longs and shorts without charging a service fee within this mechanism. Trading fees are separate.
The base is position value calculated under contract rules, not margin alone. OKX’s USDT-settled contracts calculate it using quantity, specifications and the mark price, the platform’s calculation reference. Unit conversion for other settlement assets and specifications follows the relevant product rules.
Which positions participate?
In the scheduled assessment mechanism above, payment or receipt depends on holding a position at the actual assessment.
Trader C, for example, opens after the first assessment ends and fully closes before the second begins. With no position at either actual assessment, C participates in neither transfer. Processing can take time; an interface countdown alone does not prove completion.
Products set settlement intervals. OKX’s explanation uses an eight-hour default; some contracts use one, two or four hours, with rule-based adjustments possible. Eight hours is not universal for all perpetuals. Other products’ accrual and settlement methods require separate checks.
Why can funding encourage prices to converge?
Funding changes long and short holding costs. If a persistent contract premium over spot produces a positive rate, longs pay and shorts receive. This can change willingness to hold either direction, creating incentives for the deviation to narrow. With a negative rate, payment direction reverses.
Trades still determine price. Funding does not directly replace execution prices with spot prices or guarantee immediate equality.
How is the rate formed?
Rates usually combine premiums observed over a period, interest parameters and limits. Premium means deviation from spot reference, not necessarily only the latest contract trade minus spot.
In OKX’s calculation, for example, average executable prices for a specified trade value on both sides form a premium measure relative to the index price. Observations over a period are then weighted. The index is a spot reference from specified sources. Funding thus reflects quotes over time, not only the settlement instant.
The formula also includes interest parameters, intervals and upper/lower limits. The interest parameter is a formula setting, not the trader’s real-time borrowing interest.
Displayed rates can update before settlement; actual transfers use the product’s final settlement rate. Even if the contract is now below spot, the observation period and other parameters mean the final rate need not immediately turn negative.
How does rate size affect costs?
For equal position value and the same settlement period, a larger absolute rate transfers a larger amount. The sign determines who pays whom; magnitude determines how much. +0.03% transfers three times +0.01%; a negative sign reverses direction.
Compare frequency too. With hypothetical constant rates and position value, 0.01% every eight hours totals 0.03% of position value over three daily assessments; 0.002% hourly totals 0.048% over twenty-four. The second has a smaller single rate but a larger daily total. This compares periods, not future costs.
Actual multi-period payments require each period’s position value, final rate and holding eligibility, then netting receipts and payments. Direction can change, and receipts can offset payments. One rate is not a permanently unchanged future yield or cost.
Paying funding reduces relevant account or position collateral equity and, all else equal, can bring risk closer to handling thresholds; receiving increases equity. Funding is separate from unrealized price results. See margin for collateral effects.
Can a funding rate predict price?
It reflects the formula’s treatment of observation-period data and the transfer ratio for the next or completed settlement. It helps explain holding costs and contract deviations, but its sign or size alone cannot establish that prices must next rise or fall.
Related terms
Explore perpetual contracts, mark price and margin, or return to the crypto glossary.
