One sentence: Longs and shorts exchange money every 8 hours; the stronger side has to give red envelopes to the weaker side, the purpose is to prevent the contract price from flying too far and to keep it obediently close to the spot price.

Why Do We Need Funding Rates?

Traditional futures have expiration dates, with forced settlement at expiration, so prices naturally converge to spot.

 

Perpetual contracts have no expiration date. Without fees, in a bull market, longs could pull the price to the sky; in a bear market, shorts could smash it to the core of the earth. The contract price could differ from the spot price by 50%, so what's the point of playing?

 

The funding rate is that "balance hammer": Whoever pulls the price off track has to bleed periodically until everyone pulls the price back.

How Is the Funding Rate Calculated? How Is It Collected?

Two Main Components:

  • Interest (basically fixed, small amount)

     

    Binance defaults to a daily rate of 0.03%, collected 0.01% every 8 hours

  • Premium Index (the main fluctuating part)

     

    Contract price > Spot price → Positive rate → Longs pay shorts

     

    Contract price < Spot price → Negative rate → Shorts pay longs

Collection Rhythm:

Every 8 hours (00:00, 08:00, 16:00 UTC)

 

If your position is held past the settlement point, it's automatically deducted / received, with money directly coming from and going to the margin.

A Real 2025 Case to Blow Your Mind

Bull market peak: BTC perpetual funding rate pulls to 0.1%-0.3%/8 hours (annualized 36%-100%+)

 

→ Longs frantically grab contracts → Every 8 hours, stuff money to shorts → Shorts lie down and collect money, spot longs hedging party laughs like crazy

 

Bear market bottom: Funding rate heavily negative -0.1% to -0.3%

 

→ Shorts smash the market like crazy → Every 8 hours, stuff money to longs → Longs spot + contract short hedge, annualized 100%+ is not a dream

What Exactly Is the Funding Rate For? Four Ways to Eat the Meat

  1. Read market sentiment

     

    Funding rate consistently positive above 0.05% → Longs super strong, don't call the top easily in bull market

     

    Funding rate consistently heavily negative → Shorts bloodbath the market, bottom might not be far

  2. Funding rate arbitrage (lying down to earn god tool)

     

    Funding rate ridiculously positive → Buy BTC spot + open equivalent short contract → Even if price doesn't move, you still collect the money shorts stuff

     

    Funding rate ridiculously negative → Short spot (borrow coins) + open equivalent long contract → Lie down and collect longs' red envelopes

     

    In the 2024-2025 bull market, this trick let countless people annualized 50-200% sip the soup

  3. Long-term positions must calculate costs

     

    You 100x leverage long, funding rate 0.1%, 10% margin collected in 8 hours, liquidation in a day is not a dream

     

    In high funding rate environment, short-term all-in is ok, long-term holding is chronic suicide

  4. Avoiding Pitfalls Guide

     

    Funding rate suddenly spikes above 0.3% → Longs can't hold much longer, prepare to reduce position

     

    Funding rate suddenly heavily negative → Shorts start hurting, bottom might be brewing

     

    Binance / OKX / Bybit real-time funding rate page, first thing to check every day

Last Sentence: Tearful Summary

The funding rate is the "brake pad" of perpetual contracts:

 

Without it, price flies to the moon with no one pulling it back;

 

With it, the strong side has to bleed periodically.

 

In bull market, shorts collect money until hands go soft,

 

In bear market, longs collect money until they cry,

 

The truly awesome people are spot + contract hedge,

 

No matter bull or bear, funding rate becomes their own ATM machine.

 

Want to play perpetuals? Sure.

 

First set the funding rate page as your browser homepage,

 

Then decide whether to pull up the leverage.

 

People who live by the funding rate can eat the big meat in the end;

 

People who ignore the funding rate are forever just the market's emotional trash bin.

 
Choose, brother.