The funding rate is a unique and important concept in perpetual futures — understanding it helps control costs and reveals earning opportunities. Register a Binance account to enter the futures world, and get the Binance app to monitor funding rate changes in real time.
The Basic Concept
Perpetual futures have no expiry date, unlike traditional futures that automatically converge to spot price at delivery. So how do perpetual futures stay anchored to spot prices? The answer is the funding rate.
The funding rate is a periodic fee exchanged between longs and shorts, using economic incentives to keep futures prices close to spot:
- When futures price is above spot (too many longs): Funding rate is positive — longs pay shorts
- When futures price is below spot (too many shorts): Funding rate is negative — shorts pay longs
This mechanism makes the "crowded side" pay a cost, guiding the market back to equilibrium.
Settlement Rules
On Binance, funding rates settle every 8 hours:
- UTC 00:00 (8:00 AM Beijing time)
- UTC 08:00 (4:00 PM Beijing time)
- UTC 16:00 (12:00 AM Beijing time)
Only those holding positions at settlement time pay or receive funding. If you close before settlement, no funding fees apply.
How It's Calculated
Funding Fee = Position Notional Value x Funding Rate
Example:
- You hold a 10,000 USDT BTC long position
- Current funding rate is +0.01%
- You pay: 10,000 x 0.01% = 1 USDT
This 1 USDT is deducted from your account and distributed to short position holders.
If the rate were -0.01%, it reverses — as a long, you receive 1 USDT.
What the Funding Rate Tells You
The funding rate is essentially a market sentiment thermometer:
High positive rate (0.05–0.1%+)
- Market extremely bullish, longs crowded
- High cost to hold longs
- May signal overheating, pullback risk
Low positive rate (0.005–0.02%)
- Mildly bullish market
- Normal market conditions
- Low holding costs
Negative rate
- Market bearish, shorts dominating
- Shorts pay to hold
- May signal excessive fear, bounce opportunity
Impact on Trading Strategies
Scalpers: Minimal impact since holding periods rarely span settlement times. But you can trade price movements around settlement events.
Medium/Long-term holders: Cumulative funding costs add up. At a sustained 0.03%:
- 3 settlements/day: 0.09%/day
- Monthly: ~2.7%
- On a 10,000 USDT position: 270 USDT/month
Arbitrageurs: Funding rate arbitrage is a classic strategy. When rates are high, open a spot long and futures short (or vice versa) simultaneously, earning funding fees while hedging price risk.
Funding Rate Arbitrage Explained
This is a relatively low-risk strategy:
- When funding rate is consistently positive and elevated
- Buy BTC on the spot market (go long)
- Short equal BTC value in perpetual futures
- The two positions hedge each other's price movements
- As a short, you collect funding fees every 8 hours
Pros: Price risk hedged; income from stable funding fees Cons: Limited returns; requires significant capital; rates can change
Viewing and Using Funding Rates
In the Binance app, you can see the current funding rate and countdown to next settlement at the top of the futures trading page.
Practical tips:
- Check funding rates before opening positions — avoid going long during high rates (or short during low rates)
- If not in a hurry, build positions in the funding-favorable direction
- Consider closing temporarily before settlement to avoid paying high fees
- Monitor funding rate trends — they often provide leading signals of market sentiment
The funding rate is an unavoidable cost or income item in perpetual futures trading. Fully understanding its mechanism helps optimize trading costs and provides important reference for investment decisions.