Funding rates are payments exchanged between long and short position holders in perpetual futures. If the perpetual contract trades above the spot price, longs pay shorts. If it trades below, shorts pay longs. The goal is to keep perpetual prices aligned with spot.
These payments are charged or credited on an hourly basis.
Funding rate calculation
The rate is calculated from the difference between the price premium and price discount.
If the perpetual contract is trading at a premium to the spot price, the funding rate will be positive, and long positions will pay short positions.
If the perpetual contract is trading at a discount to the spot price, the funding rate will be negative, and short positions will pay long positions.
Funding fee
Funding Fee = (Position Notional) x (Funding Rate)
If the funding rate is positive, longs pay, shorts receive.
If the funding rate is negative, shorts pay, longs receive.
Funding fee calculation
Calculate Position Notional: Notional = contract size X Mark Price
Multiply by Funding Rate: The rate is annualized but applied hourly, so for example a 1% annual rate is broken down into an hourly rate.