What is Funding Rate in Crypto?
Funding rate is a periodic payment exchanged between long and short positions in perpetual futures contracts. It ensures the perpetual contract price stays anchored to the underlying spot price.
How Funding Rate Works
Unlike traditional futures with expiration dates, perpetual futures never expire. Without a funding rate, the perpetual price could drift far from spot. The funding rate solves this by incentivizing the less popular side of the market.
- Positive funding rate: Longs pay shorts. Indicates bullish sentiment — more traders are long.
- Negative funding rate: Shorts pay longs. Indicates bearish sentiment — more traders are short.
Payments occur every 8 hours on most exchanges (00:00, 08:00, 16:00 UTC). The rate is calculated based on the premium between the perpetual contract and the spot price, plus an interest component.
Why Funding Rate Matters for Traders
Extreme funding rates are contrarian indicators. When funding is highly positive, longs are overleveraged and paying a premium — a potential setup for a long squeeze. When funding is deeply negative, shorts may be overcrowded — setting up a short squeeze.
Mirkaso tracks funding rates across major exchanges and flags extreme readings in the Scanner dashboard.
Formula
Funding Rate = Premium Index + clamp(Interest Rate − Premium Index, 0.05%, −0.05%)
The exact formula varies by exchange, but the principle remains: funding aligns perpetual price with spot.