Funding Rate

The funding rate is the periodic payment exchanged between long and short holders of a perpetual futures contract, and it is the mechanism that keeps the perp price tethered to spot. When the contract trades above the underlying index, the rate is usually positive and longs pay shorts; when it trades below, shorts pay longs. Payments typically occur several times a day and are calculated on position size, so a persistently high funding rate can quietly erode a leveraged position even when the price barely moves. Traders also read funding as a crowding signal, since sustained extreme readings suggest heavy one-sided positioning rather than a price forecast.