Funding Rates Explained: How Perp Funding Works (With Formula)
Updated · 3 min read
The funding rate is a periodic payment between longs and shorts that keeps a perpetual future's price close to spot. When the rate is positive, longs pay shorts; when it's negative, shorts pay longs. It's calculated from the gap between the perp price and the spot index plus a small fixed interest component, and it's paid every hour on Hyperliquid and Coinbase US, or every eight hours on many centralized exchanges.
- Positive funding = perp above spot = longs pay shorts. Negative funding = shorts pay longs.
- Standard formula: Funding = Premium Index + clamp(Interest − Premium, −0.05%, +0.05%), on an 8-hour basis.
- The interest component is usually fixed at 0.01% per 8 hours (≈ 11% a year paid to shorts when the premium is flat).
- Payment = position size × oracle (spot) price × funding rate, charged on notional, not margin.
- Many prop firms don't pass real funding. They charge a fixed daily swap or financing fee instead.
Who pays whom
| Funding rate | Perp vs spot | Longs | Shorts |
|---|---|---|---|
| Positive | Perp trades above spot (premium) | Pay | Receive |
| Negative | Perp trades below spot (discount) | Receive | Pay |
| ≈ 0.01% / 8h | Perp ≈ spot | Pay a small baseline | Receive the baseline |
Funding is exchanged directly between traders. On Hyperliquid the docs state that 'no fees are collected on the payments'. It isn't a fee to the exchange. It's a transfer that makes the crowded side pay the other side.
The funding rate formula
Funding Rate (F) = Average Premium Index (P) + clamp(Interest Rate − P, −0.05%, +0.05%)
8-hour rate. Hyperliquid samples the premium every 5 seconds, averages it over the hour and pays 1/8 of the 8-hour rate each hour.
Premium = [max(Impact Bid − Oracle, 0) − max(Oracle − Impact Ask, 0)] / Oracle
Impact bid/ask = the average fill price for a set size. On Hyperliquid that's $20,000 for BTC and ETH and $6,000 for other assets.
The interest rate is fixed by convention at 0.01% per 8 hours (0.00125% per hour). It represents the difference between borrowing dollars and borrowing crypto. When the perp trades exactly at spot, longs still pay this baseline, which works out to roughly 11% a year.
Worked example
Perp at a 1% premium (from Hyperliquid's docs)
- Spot/oracle = $10,000. Impact bid = $10,100 → premium = 1%.
- Interest − premium = 0.01% − 1% = −0.99% → clamped to −0.05%.
- Funding = 1% + (−0.05%) = 0.95% (8-hour basis).
- Paid hourly at 1/8 → ≈ 0.119% per hour.
- A 10 BTC long pays 10 × $10,000 × 0.119% ≈ $119 that hour, to shorts.
Funding caps differ a lot
Hyperliquid caps funding at 4% per hour, far looser than most centralized exchanges. Coinbase's proposed single-stock perps cap funding at 0.10% per hour. In a squeeze, funding on a loose-cap venue can drain an overleveraged position fast.
How to read funding as a signal
- Persistently high positive funding: longs are crowded and paying up. That often happens near local tops, and it fuels long liquidation cascades.
- Deeply negative funding: shorts are crowded. That sets up short squeezes.
- Funding flips with price: normal. Funding follows the premium, so it reacts to moves more than it predicts them.
- Pair funding with open interest to see whether new money is entering on one side.
How perps prop firms handle funding
| Firm | Holding cost on crypto perps |
|---|---|
| Carrot Funding, Propr | Real Hyperliquid funding passed through (no markup) |
| HyroTrader, Crypto Fund Trader, Klein (Bybit) | Bybit's funding rates |
| Breakout | Fixed financing 0.033% per day on open positions (charged 6× a day on its terminal) |
| MyFundedPerps | Fixed swap 0.03% per day for crypto, charged hourly; longs and shorts both pay; venue funding ignored |
| Upscale | Crypto uses spread and fees; 0.025% daily funding on 24/7 stocks, indices and energy |
The difference matters for swing traders. Under a fixed swap, you pay even when real funding would have paid you. Under pass-through funding, a crowded trade can cost more than the swap. Check the firm's page in our firm directory before holding for days.
Frequently asked questions
How often is funding paid?
Every hour on Hyperliquid and Coinbase US perpetual-style futures. Many centralized exchanges historically use 8-hour intervals (00:00, 08:00, 16:00 UTC), and some switch volatile pairs to shorter intervals.
Do I pay funding if I close before the funding time?
No. Funding is charged to positions open at the funding timestamp. Close before it and you neither pay nor receive that interval.
Is funding charged on my margin or my position size?
On the full position notional (size × price). A $1,000 margin at 10x pays funding on $10,000.
What is a normal funding rate?
The baseline is 0.01% per 8 hours (about 0.00125% per hour). Rates several times higher signal heavy one-sided positioning.
Can I earn funding?
Yes. Holding the side that receives funding earns it. Funding-capture strategies hold spot and short the perp to collect positive funding while staying market-neutral.
Sources
- Hyperliquid Docs — Funding
- Hyperliquid Docs — Contract specifications
- Coinbase — US Perpetual-Style Futures 101
Educational content, not financial advice. Perps and prop evaluations are high-risk; firm rules change, so check each firm's current terms.