Funding Rate Explained: How It Works & How to Profit
The funding rate is the mechanism that keeps perpetual futures prices aligned with spot prices. It's also one of the most important — and most misunderstood — costs of trading perps. This guide explains how funding works, what drives it, and how sophisticated traders turn it into a profit strategy.
What Is the Funding Rate?
The funding rate is a periodic payment exchanged between traders holding long and short positions. Unlike trading fees (which you pay once when entering/exiting), funding is an ongoing cost (or income) for as long as you hold a position.
Positive funding rate: Longs pay shorts. This happens when the perp price is trading above the spot price, indicating bullish demand. The payment incentivizes traders to go short, pushing the perp price back toward spot.
Negative funding rate: Shorts pay longs. This occurs when the perp price is below spot, indicating bearish pressure. The payment incentivizes longs to enter, pulling the perp price up toward spot.
How Funding Is Calculated
The funding rate typically has two components:
The final funding rate = Premium + Interest Rate. This rate is applied to your position size at each funding interval. Most DEXes use 1-hour intervals, while some use 8-hour intervals. You can view live funding rates across all DEXes on our funding page.
The Real Cost of Holding Positions
Funding rates might seem small — a typical rate of 0.01% per 8 hours seems negligible. But compounded over time, the cost adds up significantly:
0.01% per 8h × 3 intervals/day × 365 days = 10.95% per year
During high-demand periods, funding can spike to 0.1% or higher per interval, translating to over 100% annualized. This is why short-term perp trades are common — holding positions for weeks or months can be expensive if funding consistently runs against you.
Funding Rate Arbitrage Strategy
One of the most popular funding-based strategies is delta-neutral funding farming. The idea is simple: capture funding payments while hedging out price risk.
- Identify a market with consistently positive funding rates
- Go short on perps (to receive funding)
- Simultaneously go long spot (buy and hold the actual asset)
- Your short perp loss is offset by your spot long gain (and vice versa), while you collect funding payments
Risks to consider: Funding rates can flip negative, eating into profits. Liquidation risk on the short perp side if the asset price surges. Execution costs (fees on both legs). Capital efficiency is limited since you need collateral on both sides.
Monitor live funding rates to identify opportunities — look for assets with consistently elevated rates across multiple exchanges.
Cross-Exchange Funding Arbitrage
Different exchanges can have meaningfully different funding rates for the same asset at the same time. This creates cross-exchange arbitrage opportunities:
- Go short on the exchange with the higher positive funding rate (receive more)
- Go long on the exchange with the lower (or negative) funding rate (pay less)
- Net the difference as profit while maintaining delta neutrality
Our funding rates comparison page shows rates across all DEXes side by side, making it easy to spot divergences.
Funding Intervals by DEX
Different DEXes use different funding intervals, which affects how often payments are exchanged:
- 1-hour intervals: Hyperliquid, dYdX, Jupiter Perps, GMX v2, Drift, SynFutures, Gains Network, and most newer DEXes
- 8-hour intervals: ApeX, edgeX, Orderly Network, GRVT, Aark
More frequent intervals mean smaller individual payments but smoother cost accrual. Less frequent intervals can result in larger swings at each payment point.