A crypto funding rate is a periodic payment between traders holding long and short positions in a perpetual futures contract. When the perpetual trades above the spot price, longs pay shorts; when it trades below, shorts pay longs. The payment keeps the perpetual's price close to spot, and on most exchanges it is settled every 8 hours, though some settle every 4 hours or every hour.
This guide explains how funding rates are calculated and paid, how to annualise them, and what seven years of Binance BTCUSDT funding data show about the "cash-and-carry" trade and about extreme readings as a signal. It is education, not financial advice.
Key Takeaways
- Funding is paid between traders, not to the exchange: payment = position size x funding rate, at each settlement.
- The default is small: 0.01% per 8 hours, or 10.95% a year if it never changed. On Binance BTCUSDT, 35% of all settlements since 2019 were exactly 0.01%.
- Extremes are rare and got rarer: funding above 0.1% per 8 hours happened in 1.1% of settlements, and not once after 2021.
- Carry income varies a lot by year: a short collected 30.6% in funding in 2021, but only 4.2% in 2022 and 5.1% in 2025, before fees.
- High funding was not a reliable top signal: 30 days after days of elevated funding, BTC was lower 48% of the time, about the same as on any other day.
What Are Crypto Funding Rates?
A perpetual future (a perpetual swap, or "perp") is a futures contract with no expiry date. A normal future converges to the spot price at expiry; a perpetual never expires, so it needs another way to stay close to spot. That is the funding rate.
- Positive funding: the perpetual trades above the spot index. Longs pay shorts, which makes holding a long more expensive and a short more attractive, pulling the price back down.
- Negative funding: the perpetual trades below spot. Shorts pay longs, pulling the price back up.
Funding is paid directly between traders who hold a position at the settlement time. The exchange does not keep it, and you only pay or receive it if your position is open at that moment. For more on the contracts themselves, see our guide to perpetual swaps.
How Funding Rates Are Calculated and Paid
Most exchanges use the same structure: a premium that measures how far the perpetual trades from the spot index, plus a small fixed interest rate. Binance publishes it as:
Funding rate = average premium index + clamp(interest rate - premium index, -0.05%, +0.05%)
The interest rate is fixed at 0.01% per 8 hours (0.03% a day) by default. The clamp means that when the premium is small, the rate snaps to that 0.01% baseline, which is why so many settlements sit exactly there. Each contract also has a maximum and minimum rate.
How often funding is paid
- Every 8 hours is the most common schedule. On Binance it is 00:00, 08:00 and 16:00 UTC by default.
- Every 4 or 1 hour on some contracts. Binance can move a contract to hourly settlement when its rate hits the cap or floor, and later move it back.
- Every hour on some exchanges by design. Hyperliquid pays funding every hour.
Always check the interval on the contract you trade. A 0.01% rate paid hourly costs eight times as much per day as 0.01% paid every 8 hours.
What you pay or receive
Funding payment = position size (notional) x funding rate
A $10,000 long BTC position at +0.01% pays $1 at the settlement; a $10,000 short receives $1. Leverage does not change the rate, but it does change the payment relative to your margin: on $1,000 of margin at 10x, that $1 is 0.1% of your margin every 8 hours.
Annualising the rate
Multiply by the number of settlements in a year to compare funding with other costs or yields:
| Rate per 8 hours | Per day | Per year, if it stayed constant |
|---|---|---|
| 0.01% (the default) | 0.03% | 10.95% |
| 0.03% | 0.09% | 32.85% |
| 0.05% | 0.15% | 54.75% |
| 0.10% | 0.30% | 109.5% |
The "if it stayed constant" part matters: funding rarely stays high for long, as the data below shows.
What 7 Years of BTC Funding Data Show
We pulled every funding settlement on Binance's BTCUSDT perpetual from 10 September 2019 to 29 October 2026, 7,820 in total, from Binance's public funding history.
Left: daily average funding on Binance BTCUSDT, annualised. Right: the sum of all funding rates per calendar year, the gross amount a constant short would have collected. Before fees; 2026 is year to date.
| Binance BTCUSDT, Sep 2019 to Oct 2026 | Share of settlements |
|---|---|
| Positive (longs paid shorts) | 86% |
| Exactly 0.01%, the default | 35% |
| Above 0.05% | 4.3% |
| Above 0.1% | 1.1% |
| Negative (shorts paid longs) | 14% |
| Below -0.05% | 0.2% |
- The typical rate is the default. The median settlement was 0.0094% and the average 0.0105%, almost exactly the 0.01% baseline.
- The extremes clustered in 2020 and 2021. The highest rate was 0.3% (February 2020) and the lowest -0.3% (the March 2020 crash). From 2022 on, BTCUSDT funding never went above 0.088%, and in 2022, 2025 and 2026 never above 0.01%.
- Carry income fell sharply after the 2021 bull market. Summing every rate per year, a short collected 17.2% in 2020, 30.6% in 2021, 4.2% in 2022, 7.9% in 2023, 12.0% in 2024, 5.1% in 2025 and 2.6% in 2026 to 29 October, all before fees.
Funding Rates as a Sentiment Signal
High positive funding is often described as a sign that longs are crowded and a correction is due. We tested that on the same data, comparing BTC's price 7 and 30 days after each day with BTC's behaviour on all days:
| Daily average funding | Days | BTC 30 days later: median | Share of days BTC was lower 30 days later |
|---|---|---|---|
| All days | 2,576 | +1.9% | 44% |
| Above 0.05% per 8h | 107 | +2.5% | 48% |
| Above 0.1% per 8h | 26 | +12.0% | 31% |
| Negative | 324 | +4.8% | 32% |
Historical description, not a backtest of a trading strategy. Past funding and price behaviour does not guarantee future results.
- Elevated funding did not reliably mark tops. After days above 0.05%, BTC fell over the next 30 days only slightly more often than on an average day. The highest readings came during the 2020 and 2021 bull runs, which kept going.
- Negative funding leaned the other way. After days with negative funding, BTC was higher 30 days later more often than average. The most negative days cluster around washouts such as March 2020, mid-2021 and November 2022, so a few events weigh heavily in this result.
- Use funding as context. It tells you which side is paying to hold its position, not where price goes next. Combine it with open interest, price structure and liquidation levels rather than trading it alone.
The Cash-and-Carry (Funding Rate Arbitrage) Trade
The best-known funding strategy tries to collect funding without betting on direction:
- Buy an amount of BTC on the spot market.
- Open a short of the same size on the BTC perpetual.
- If BTC rises, the spot gains and the short loses about the same; if it falls, the reverse. The position is roughly price-neutral.
- While funding is positive, the short collects it.
On paper, $10,000 hedged this way at the 0.01% default collects $3 a day. In practice the income is much less certain than the formula suggests:
- Funding changes. The yearly totals above ranged from 30.6% to 2.6%, and 14% of settlements were negative, when the short pays instead.
- Fees eat the early income. At a 0.1% spot fee and a 0.05% futures fee, opening and closing both legs of $10,000 costs about $30, ten days of funding at the default rate.
- The short can be liquidated. A fast rally raises the margin needed on the short leg. If the short is liquidated, you are left with an unhedged spot position. Keep leverage on the short low and margin topped up.
- Two accounts, two risks. The legs usually sit in different accounts or on different exchanges, so you carry counterparty risk on both and need collateral where the short is.
- Basis can move against you. The perpetual and spot prices are close but not identical, so closing the trade at a bad moment costs money.
Cross-exchange versions (short the perpetual where funding is high, long it where funding is low) add the risk of managing margin on two exchanges at once. None of this is risk-free or guaranteed income.
Common Mistakes With Funding Rates
- Annualising one high reading. 0.05% for one interval is 54.75% a year only if it never changes. It usually does within days.
- Ignoring the interval. The same rate costs more on an hourly contract than on an 8-hour one.
- Forgetting funding on long holds. A leveraged long held for months at the default rate costs about 11% a year on its notional size, on top of fees.
- Treating funding as a timing signal. In our data, high funding alone did not predict drops.
- Over-leveraging the hedge. In a carry trade, a liquidated short turns a neutral position into a directional one at the worst moment.
Trading Perpetual Futures in Altrady
Altrady connects to perpetual futures on Binance, Bybit, OKX, Hyperliquid, KuCoin, BingX, Kraken and Toobit (USD-margined contracts; each futures exchange is its own trading account in Altrady). Check the current funding rate and interval on your exchange before you trade. Altrady covers the execution and risk side:
- Smart orders on futures. Enter a long or short with take-profit targets and a stop loss in one smart order, including trailing stops, so a funding-driven squeeze does not catch you without an exit.
- Leverage and liquidation in view. Set leverage and margin mode in the trading widget, and see each open position's liquidation price in the Position Info widget.
- Both legs in one terminal. Connect your spot and futures accounts and manage them side by side, which helps when a carry trade's legs sit on different accounts.
- Practise first. Use paper trading to rehearse entries, exits and position sizing before you trade with real money.
Futures and leverage carry a high risk of loss. Only trade with money you can afford to lose.
Frequently Asked Questions
What is a funding rate in crypto?
It is a periodic payment between long and short traders in a perpetual futures contract. When the perpetual trades above spot, longs pay shorts; when it trades below, shorts pay longs. It keeps the perpetual price close to the spot price.
How are funding rates calculated?
Most exchanges add a premium, which measures how far the perpetual trades from the spot index, to a fixed interest rate of 0.01% per 8 hours, and clamp the result. When the premium is small, the rate settles at the 0.01% baseline. Each contract has its own maximum and minimum rate.
How are funding costs calculated on a leveraged position?
Multiply the full position size, not your margin, by the funding rate at each settlement. A $10,000 position opened with $1,000 at 10x leverage pays or receives $1 at a 0.01% rate, which is 0.1% of the margin each time.
How often are funding rates paid?
Every 8 hours on most contracts, at 00:00, 08:00 and 16:00 UTC on Binance. Some contracts settle every 4 hours or every hour, and some exchanges, such as Hyperliquid, pay funding every hour. Check the contract's interval before you trade.
Is a high funding rate bullish or bearish?
It shows that longs are paying to hold their positions, which signals bullish positioning. It is not a reliable sell signal on its own: on Binance BTCUSDT from 2019 to 2026, BTC was lower 30 days after days of funding above 0.05% only slightly more often than after an average day.
What does negative funding mean?
The perpetual trades below spot and shorts pay longs, which signals bearish positioning. Negative funding on BTC has often appeared during sell-offs and washouts, but those episodes are few and each one is different.
Can you make money from funding rates?
The cash-and-carry trade tries to, by holding spot and an equal perpetual short so the short collects positive funding. Income depends on funding staying positive and has varied from about 30% to under 5% a year on BTC before fees. Fees, liquidation risk on the short and exchange risk can turn it into a loss.
This article is for education only and is not financial advice.