Perpetual futures and the funding rate

Summary

Perpetual futures have no end date, so a small payment between longs and shorts, the funding rate, keeps their price close to the real market. When most traders are long and the contract trades above the market, longs pay shorts. When shorts dominate, shorts pay longs. A very high funding rate shows one side is crowded — useful context, not a signal on its own.

Key points

• Funding keeps a perpetual close to the real market price.
• Positive funding: longs pay shorts. Negative: shorts pay longs.
• Extreme funding shows a crowded side.

Check yourself

When funding is strongly positive, who pays whom?

Practice