What Are Crypto Perpetual Contracts?
Crypto perpetual contracts are futures that never expire. Unlike traditional futures with settlement dates, perpetuals allow traders to hold positions indefinitely. The funding rate mechanism keeps these contracts priced close to the underlying spot price.
How Funding Rates Work
Every 8 hours, funding is exchanged between long and short traders:
- Positive funding (>0): Long traders pay short traders. This happens when more traders are long than short, pushing the perpetual price above spot.
- Negative funding (<0): Short traders pay long traders. This happens when more traders are short than long, pushing the perpetual price below spot.
- Zero funding: Market is balanced. Perpetual price equals spot price.
Funding Rate Timing
Most exchanges settle funding at 00:00, 08:00, and 16:00 UTC. If you enter a position 1 minute before funding, you pay/receive funding immediately. If you enter 1 minute after funding, you wait 8 hours for the next funding payment.
Calculating Funding Costs
Funding cost = Position Size × Funding Rate
Example: ,000 position at 0.1% funding = per 8-hour period, or monthly.
Strategic Use of Funding Rates
- Long-term holders: Avoid going long during periods of high positive funding
- Short sellers: Benefit from negative funding when holding short positions
- Arbitrageurs: Exploit funding rate differentials between exchanges