Funding Rates. What it costs to hold the crowd's trade.
Perpetual futures never expire, so something has to keep them anchored to the spot price. That something is funding: a periodic payment between longs and shorts, usually every eight hours.
When perps trade above spot, longs pay shorts. When they trade below, shorts pay longs. The rate is therefore a direct, numerical read on which side is paying to keep its position open.
Funding is positioning expressed as a price
Sentiment indicators ask people what they think. Funding shows what they are willing to pay. A persistently high positive rate means longs are collectively paying a real, recurring cost to stay long, which tells you both that the market is crowded and that holding the position has a carrying cost working against it.
Funding Rates in a strategy
Extended high positive funding means longs are crowded and paying for the privilege.
A market-neutral position can collect funding while hedging out direction entirely.
A strategy that holds perps for days should account for funding as a real drag on returns.
Funding flipping sign after a long stretch often coincides with a shift in who is in control.
Collect funding without taking a direction
A carry trade: hold offsetting positions so the funding payment is the return and price direction largely cancels out.
- IF8-hour funding on the perp is above 0.05%, roughly 55% annualised
- ANDIt has stayed positive for at least 3 consecutive settlements
- ANDSpot liquidity is deep enough to hedge the same notional without heavy slippage
- ANDCombined maker fees on both legs are below the expected funding for one period
This is closer to a yield trade than a directional one, and its risks are different. The legs can drift apart (basis risk), one venue can have an outage while the other moves, and fees on two legs will quietly eat a thin spread, which is why the fee condition is in the list. The position also needs margin monitoring on the short leg: a sharp rally does not lose you money overall, but it can liquidate the perp leg before the spot gain is realised if the margin is not managed.
Every perp venue publishes the current rate, the predicted next rate and the full historical series for each contract.
Aggregators list the same contract's funding across exchanges, which is what makes venue-to-venue basis trades visible.
Funding paid and received on your connected account is recorded per settlement, so the real cost of a strategy is measurable rather than estimated.
High funding is not a timing signal
Funding can stay extreme far longer than an opposing position can stay solvent. It tells you a trade is crowded and expensive to hold; it says nothing about when that will stop being true. Used alone as a reversal trigger, it is a reliable way to be early and liquidated.
Make Funding Rates something your bot acts on.
Build the rules once and let the engine hold the line, day and night.
- Crowding, measured
- Carry strategies
- Cost of holding