How Funding Rates Work
Funding is the payment that keeps a perpetual future pinned to spot. What sets the rate, who pays whom, and how to read it as a positioning signal.
What funding is
Funding is a payment exchanged directly between traders holding open perpetual positions. The exchange does not take it: it moves from one side of the book to the other. On Hyperliquid it settles every hour.
When the rate is positive, longs pay shorts. When it is negative, shorts pay longs. The amount is the rate multiplied by your position's notional value, not by your margin. A 10x levered position pays ten times the funding of an unlevered one with the same margin.
What sets the rate
Two inputs. The first is the premium: how far the perpetual is trading from the oracle spot price. A perp persistently above spot produces positive funding, which taxes longs until the gap closes. The second is an interest-rate component that nudges the rate toward a small positive baseline, reflecting the fact that holding a long is roughly equivalent to borrowing the quote asset.
Reading it as a signal
Funding is a direct, quantified readout of crowding. Sustained high positive funding means longs are paying meaningfully to stay long: leverage has piled up on one side. That does not tell you the price will fall, but it does tell you a sharp move down would liquidate a lot of people, and liquidations feed on themselves.
The inverse is often more useful. Deeply negative funding means shorts are paying to stay short, which usually appears after a capitulation. Those are the conditions for a squeeze.
The arithmetic people get wrong
Hourly rates look tiny and compound fast. A rate of 0.01% per hour is 0.24% per day and roughly 8.8% per month. On a 10x position that is most of your margin over a quarter, paid out quietly while you focus on price.
Before holding a levered position for days, work out what funding costs over your intended holding period and compare it to the move you are expecting. If funding eats a third of your target, the trade is worse than it looks.
Earning it instead of paying it
Holding spot and shorting the perp in equal size leaves you flat on price while collecting funding whenever the rate is positive. This is the cash-and-carry trade. The risks are not price risk but execution: the two legs can drift apart, the rate can flip negative, and the short leg still needs margin maintained.
Last updated 2026-09-24