Funding Rate Explained: The Hidden Cost of Perpetual Futures

Perpetual futures never expire, so exchanges use a funding rate to keep their price tethered to spot. Every 8 hours, one side of the market pays the other. Understanding it saves you money and gives you a read on positioning.

Who pays whom

When funding is positive, longs pay shorts — it costs money to be long. When negative, shorts pay longs. The rate is usually tiny (around 0.01% per 8h) but it adds up on leveraged positions held for days.

Funding as a sentiment gauge

Persistently high positive funding means the crowd is heavily long and paying to stay there — a crowded trade that often precedes a flush lower (a contrarian warning). Deeply negative funding means the crowd is short, which can fuel a squeeze higher.

How Signal Bench uses it

The dashboard shows live funding and open interest, and funding extremes feed a mild contrarian input into the signal engine. See also: Learn: open interest explained.