A funding rate, in perpetual futures, is a rate used to calculate transfers between long and short position holders. It makes holding one side more costly and the other more attractive, helping the perpetual's price track a reference index. For a trading strategy, funding is a separate cash-flow component that can change profit and collateral needs even when the underlying price barely moves.
The same phrase can mean the interest rate paid to borrow cash elsewhere in finance. This page concerns perpetual-contract funding. A perpetual funding payment is not automatically interest charged on a loan, and a trader may incur borrowing interest separately.
Start with the payment, not an annualised headline
Consider a fictional USD-settled perpetual with a stipulated funding notional of USD 100,000 at a funding instant. Its rate for the applicable period is +0.01%. The toy contract explicitly says that positive funding is paid by longs to shorts, and both positions are eligible for this payment.
The long pays USD 10; the corresponding short receives USD 10. The decimal rate is 0.0001. It is not 1%, an annual yield or a change in the contract's price. The USD 100,000 is the stipulated calculation base, not the trader's margin deposit.
A compact signed ledger is
where is the nonnegative USD funding notional and is the signed period rate expressed as a decimal. A positive cash flow means a receipt. This equation encodes the toy contract's rule; it is not a universal formula for every venue or instrument.
Original synthetic funding ledger. The toy contract settles in USD and stipulates that positive funding is paid by longs. Positive cash flow is a receipt; negative cash flow is a payment. Price P&L and fees are excluded.
Changing only the rate to −0.01% reverses the USD 10 transfer. At a zero rate, neither side pays funding in this model. Price profit and loss, commissions and any borrowing costs remain separate ledger entries.
The period on the screen is not the whole convention
The rate's sign is only the first field to check. The contract also determines the calculation base, payment currency, rate formula, caps and timing.
Bybit's current documentation describes payments at funding times, with eligibility based on positions held then. It states that intervals and limits can differ by trading pair and can change. Its linear stablecoin examples calculate position value from quantity and mark price, whereas its inverse example calculates a coin-denominated value by dividing contract quantity by mark price. A USD quotation does not by itself imply a USD cash payment. Source: Bybit funding fees.
Deribit's inverse perpetual documentation illustrates a different timing distinction: it quotes an eight-hour funding rate while calculating funding continuously and moving realised funding into the cash balance at daily settlement. Its calculation applies a dampener and caps to the premium measure. The quoted period, accrual process and cash-balance settlement are distinct. Source: Deribit inverse perpetual.
There is therefore no universal eight-hour payment rule. Record the specific instrument and venue, the observation period behind the rate, when the position qualifies, which rate becomes final, how the calculation base is valued and which currency changes hands. A predicted next rate is also different from funding already accrued or paid.
Funding often responds to a perpetual trading above or below its reference index, but a displayed rate need not equal the raw price premium. Premium averaging, interest components, dampeners and caps depend on the contract. The mechanism supplies an incentive to narrow the gap; it does not guarantee price equality. The premium itself belongs to the basis ledger.
Receiving funding is not a complete trade return
A trader who buys spot and shorts a perpetual may receive positive funding under the illustrated sign convention. That receipt is only one part of the result. The spot and perpetual prices can diverge, future rates can reverse, entry and exit incur transaction costs, and collateral can become insufficient before the trade is closed. Venue failure or a blocked transfer can also prevent a planned rebalance. A funding quote does not lock in the trade's net profit.
Annualising a period rate can help compare quotations only after specifying the time basis and simple versus compounded treatment. It does not establish that the rate will persist, that payments can be reinvested, or that return on posted capital equals the annualised funding quote. Realised funding requires the actual rate history, eligible position path and contract calculation rules.
The Crypto Basis and Funding project brief (membership required) develops this research question around carry, execution costs, capital allocation and venue limits. It is a project specification, rather than evidence of realised strategy returns.
Sources
- Bybit Help Center — Funding Fee Calculation: payment eligibility, varying intervals, sign conventions and linear versus inverse calculation bases.
- Deribit Support — Inverse Perpetual: funding incentives, quotation period, continuous calculation, daily settlement, dampener and caps.
- John C. Hull, Options, Futures, and Other Derivatives, ninth edition, Global Edition, Pearson, 2018: Chapter 1, p. 28 and Section 1.3, pp. 28–29, for underlying principal versus contract value and long/short positions. Current perpetual funding conventions use the venue sources above.