How the funding rate works in crypto perps

Funding is a payment between longs and shorts every 8 hours, on Cryptathon at 05:30, 13:30 and 21:30 IST. When the rate is positive, longs pay shorts; when it is negative, shorts pay longs. The payment is the position value at the mark price times the rate, so a 1,000 USDT long at +0.01% pays 0.10 USDT.

By the end, you can

1Say when funding is paid and who pays whom
2Work out a funding payment
3Say where the funding rate comes from

1 of 3

When is funding paid, and who pays?

Funding is a payment between longs and shorts. On Cryptathon it happens every 8 hours, at 05:30, 13:30 and 21:30 IST (00:00, 08:00 and 16:00 UTC). When the rate is positive, longs pay shorts. When it is negative, shorts pay longs.

Only positions that are open at the funding time pay or receive. Funding is not charged for the hours in between.

Worked example

A day with a long

You hold a 1,000 USDT SOL long from 10:00 to 22:00 IST. The mark price stays the same, and the funding rate is +0.01% each time. What do you pay?

1
Find one paymentThe rate is on the position size.
1,000 × 0.01% = 0.10 USDT
2
Count the funding times you were openYou were open at 13:30 and 21:30 IST, but not at 05:30.
2 × 0.10 = 0.20 USDT

Answer0.20 USDT, paid to shorts. The rate was positive, so longs pay.

Figure 1 One day in IST. Funding happens at 05:30, 13:30 and 21:30. A long held from 10:00 to 22:00 is open at two of them, so it pays twice.

Your turn You open a long at 14:00 IST and close it at 21:00 IST. The funding rate is positive at every funding time. How many funding payments do you make?

None
Right. The funding times are 05:30, 13:30 and 21:30 IST, and you were not open at any of them.
One
You closed at 21:00, half an hour before the 21:30 funding time.
A part payment for 7 hours
Funding is not charged by the hour. Only positions open at a funding time pay.
Three
There are three funding times a day, but you were open at none of them.

Show the answer

A: None. The funding times are 05:30, 13:30 and 21:30 IST, and you were not open at any of them.

2 of 3

How do you work out a funding payment?

On Cryptathon the payment is coin quantity × mark price at the funding time × funding rate. The price is the mark price at that moment, not your entry price.

The payment is on the position size, not on your margin. So with the same margin, a 10x position pays ten times as much as a 1x position.

On Cryptathon funding is paid out of, or into, the position's margin (if a payment is bigger than the margin, the rest comes from your free balance). So each payment you make brings your liquidation price a little closer, and each one you receive moves it a little away.

Worked example

Funding on 5 SOL

You opened a 5 SOL short at 210 USDT at 10x, so 105 USDT of margin. At the funding time the mark is still 210 and the rate is +0.03%. What happens?

1
Find the position valueCoin quantity times the mark at the funding time.
5 × 210 = 1,050 USDT
2
Apply the rateFunding rate times the position value.
1,050 × 0.03% = 0.315 USDT
3
Compare it with your marginYour initial margin was a tenth of the entry value.
1,050 ÷ 10 = 105 USDT
4
Read it as a share of your marginLeverage makes it ten times bigger on your margin.
0.315 ÷ 105 = 0.3%

AnswerThe rate is positive, so you receive 0.315 USDT from the longs. That is 0.3% of your margin.

Figure 2 The same 105 USDT of margin and the same +0.03% rate. At 1x the position is 105 USDT and the payment is 0.0315 USDT. At 10x it is 1,050 USDT and 0.315 USDT.

Your turn You hold a long of 0.01 BTC. At the funding time the mark price is 60,000 USDT and the rate is +0.01%. What do you pay?

0.06 USDT
Right. 0.01 × 60,000 = 600 USDT, and 600 × 0.01% = 0.06 USDT.
6 USDT
You read 0.01% as 1%. 0.01% is 0.0001.
0.60 USDT
You read 0.01% as 0.1%. 600 × 0.0001 = 0.06.
It depends on your leverage
The payment is on the position value. Leverage is not in the sum.

Show the answer

A: 0.06 USDT. 0.01 × 60,000 = 600 USDT, and 600 × 0.01% = 0.06 USDT.

3 of 3

Where does the funding rate come from?

On Cryptathon the rate is the average premium of the mark price over the index price during the 8 hours. When the mark is above the index on average, the premium is positive, so longs pay. That makes holding a long cost more and pulls the book back towards the index. When the mark is below the index on average, the rate is negative and shorts pay.

The rate is capped at ±0.75% for each funding time, however big the premium is.

Worked example

Average premium over 8 hours

Over the 8 hours, the mark is above the index by 0.02%, then 0.04%, then 0.06%, each for a third of the time. You hold a 1,000 USDT long. What is the rate, and what do you pay?

1
Add the premiumsThree equal parts of the 8 hours.
0.02% + 0.04% + 0.06% = 0.12%
2
Find the averageThis is the funding rate.
0.12% ÷ 3 = 0.04%
3
Find your paymentPosition value times the rate.
1,000 × 0.04% = 0.40 USDT

AnswerThe rate is +0.04%, so you pay 0.40 USDT to the shorts.

Worked example

The cap

The premium averages 0.9% over 8 hours. You hold a 1,000 USDT long with 100 USDT of margin. What do you pay?

1
Compare it with the capThe premium is above the cap, so the rate is 0.75%.
0.9% − 0.75% = 0.15%
2
Find your paymentPosition value times the capped rate.
1,000 × 0.75% = 7.5 USDT
3
Compare it with your marginThe payment is the same as 7.5% of your initial margin.
7.5 ÷ 100 = 7.5%

Answer7.50 USDT. Funding is small most of the time, but at the cap it can be a large share of a leveraged margin.

Figure 3 The premium over one 8-hour window, in three parts: 0.02%, 0.04% and 0.06%. The average, 0.04%, is the funding rate. The cap is far above, at 0.75%.

Your turn The premium averages −0.3% over 8 hours. What happens at the funding time?

Longs pay shorts 0.3%
A negative rate goes the other way: shorts pay longs.
Shorts pay longs 0.3%
Right. The mark was below the index on average, so the rate is negative and shorts pay.
Shorts pay longs 0.75%
The cap is a limit, not the rate. The rate is the average premium, −0.3%.
Nobody pays
Only a rate of exactly 0 means no payment.

Show the answer

B: Shorts pay longs 0.3%. The mark was below the index on average, so the rate is negative and shorts pay.

Common questions

Is funding a fee paid to the exchange?

No. Funding moves between traders: when the rate is positive, longs pay shorts; when it is negative, shorts pay longs. The exchange does not keep it. That is different from the trading fee, which you pay on each trade. So when you hold a 1,000 USDT short and the rate is +0.01%, you receive 0.10 USDT, and a long of the same size pays 0.10 USDT.

Is the funding rate the same for BTC, ETH and SOL?

No. Each market has its own mark price and its own index price, so each has its own premium and its own funding rate. At the same funding time, BTC can have a rate of +0.01% while SOL has −0.02%. Then BTC longs pay BTC shorts, and SOL shorts pay SOL longs. Every rate is capped at ±0.75%.

Is funding bigger than the trading fee?

It depends on the rate and how long you hold. A 1,000 USDT position opened and closed at the same price with market orders costs 1 USDT in trading fees. If a long stays worth 1,000 USDT and the rate stays at +0.01%, it pays 0.30 USDT a day and 1.20 USDT over four days. At +0.75%, one payment is 7.50 USDT.

Check yourself

Three questions on the whole lesson.

Question 1 of 3 The funding rate is −0.02%. You hold a short worth 2,000 USDT at the mark price. What happens?

You receive 0.40 USDT
A negative rate means shorts pay longs, so you pay.
You pay 0.40 USDT
Right. 2,000 × 0.02% = 0.40 USDT, and with a negative rate shorts pay.
You pay 0.04 USDT
Check the sum: 2,000 × 0.0002 = 0.40, not 0.04.
Nothing, shorts never pay
Shorts pay whenever the rate is negative.

Show the answer

B: You pay 0.40 USDT. 2,000 × 0.02% = 0.40 USDT, and with a negative rate shorts pay.

Question 2 of 3 You open a long at 05:00 IST and close it at 06:00 IST. The funding rate is positive at every funding time. How many funding payments do you make?

One
Right. You were open at the 05:30 IST funding time.
None, you held it for only an hour
The time held does not matter. You were open at 05:30.
One eighth of a payment
Funding is not charged by the hour.
Three
Only the funding times you are open for count, and that is one.

Show the answer

A: One. You were open at the 05:30 IST funding time.

Question 3 of 3 The premium averages 0.9% over 8 hours. What is the funding rate?

0.9%
The rate is capped at 0.75%.
0.75%
Right. The average is above the cap, so the rate is 0.75%.
0.1125%
You divided by 8. The rate is the average premium over the whole 8 hours, then capped.
1%
That is the band that holds the mark near the index, not the funding cap.

Show the answer

B: 0.75%. The average is above the cap, so the rate is 0.75%.

What to remember

When is funding paid, and who pays?Funding is paid at each funding time, only by positions open at that moment; positive rate means longs pay shorts.
How do you work out a funding payment?Payment = coin quantity × mark price × funding rate, so leverage grows it on your margin.
Where does the funding rate come from?The rate is the average premium of the mark over the index, capped at ±0.75%.

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