A funding rate is a periodic payment that flows between the long side and the short side of a perpetual futures contract. It exists to keep the contract's market price from drifting away from the spot price of the underlying asset.
How the payment works
Derivatives exchanges charge funding every interval — Binance and Bybit use 8-hour windows, while dYdX and Hyperliquid settle hourly. If the funding rate is positive, longs pay shorts; if negative, shorts pay longs. The size of the payment is the rate multiplied by your notional position size.
Why it matters
Funding aggregates the directional bias of every participant in the market. A persistently positive funding rate means the long side is crowded — and over-leveraged longs are the prime targets for liquidation cascades. Many traders use it as a contrarian signal: when funding goes extreme, a snap-back to neutrality often accompanies a larger move.
Funding-rate flips
The moment funding crosses from one sign to the other — positive to negative or vice versa — is a leading indicator of regime change. AlphaTerminal's /predictive dashboard tracks every flip across Binance, Bybit, OKX, and HTX so you can react before the spot market confirms the move.
Strategy implications
Holding a perpetual position through funding is not free. A 0.03% per-8h rate compounds to roughly 33% APR — that is the cost of staying on the crowded side. Factor funding into every carry-trade decision, and either size accordingly or clear perps entirely.