Funding Rate
The funding rate is a periodic payment between long and short positions in a perpetual futures contract that keeps the perpetual price anchored to the spot price. When the perpetual trades above spot (positive funding rate), longs pay shorts, incentivizing longs to close or shorts to open, driving the perpetual price down. When the perpetual trades below spot (negative funding), shorts pay longs. Funding rates are typically calculated every 8 hours on centralized exchanges and every hour on DEX perp platforms. The funding rate is composed of a premium component (the deviation between perp and spot) and an interest rate component (the time value of holding the position). Persistently elevated funding rates signal extreme bullish positioning and often precede mean-reversion drawdowns. Cross-venue funding rate arbitrage — going long the perpetual on a venue with negative funding and short on a venue with positive funding — has become a popular delta-neutral strategy.