What Are Funding Fees in Crypto Futures? (Explained)
Disclosure: This article is educational and may contain affiliate links (we may earn a commission at no extra cost to you). It is not financial advice. Trading derivatives carries a high risk of loss.
If you’ve traded perpetual futures, you’ve seen a “funding” line and maybe wondered why you were charged even without closing a trade. Funding fees are one of the most misunderstood parts of perps. Here’s how they actually work.
Why funding exists
- No expiry to force convergence: Perpetual contracts never expire, so there’s no settlement date to pull the price back to spot.
- Funding is the tether: Instead, periodic funding payments nudge the contract price toward the underlying spot price.
- Trader-to-trader: The payment flows between longs and shorts. The exchange facilitates it but doesn’t pocket it (that’s the separate trading fee).
Who pays whom
| Funding rate | Meaning | Direction |
|---|---|---|
| Positive | Perp trading above spot | Longs pay shorts |
| Negative | Perp trading below spot | Shorts pay longs |
| Near zero | Perp ≈ spot | Minimal transfer |
How it’s calculated (in plain terms)
Funding is applied at set intervals — commonly every 8 hours — and is based on your position’s notional size, not your margin. So if you hold a large leveraged position, a small funding rate is charged on the full position size, which is bigger than it looks relative to your collateral. You only pay (or receive) if you’re holding a position at the funding timestamp; if you close before it, you skip that round. Rates float with market conditions, rising when one side is crowded.
What it means for you
- Holding costs add up: On a long-held position, repeated funding can erode profits, especially with leverage.
- Crowded trades cost more: When everyone is long, positive funding gets expensive for longs.
- It can pay you: Being on the less-crowded side can mean receiving funding.
- Check the timestamp: Know when funding is charged if you scalp around it.
Bottom line
Funding fees are periodic payments between longs and shorts that keep perpetual futures aligned with spot. Positive means longs pay shorts; it’s charged on position size, so leverage magnifies it on long holds. It’s separate from the exchange’s trading fee. Learn more in our guides to leverage in crypto trading and how crypto trading fees work.
Frequently asked questions
Does the exchange keep the funding fee? No. Funding is paid between traders (longs and shorts). The exchange’s revenue comes from the separate trading/commission fee.
How often is funding charged? Commonly every 8 hours, but it varies by exchange and contract. You only pay or receive if you hold a position at that timestamp.
Is funding based on my margin or position size? Position (notional) size. With leverage, that’s larger than your margin, so funding can be more significant than it first appears.