Learn Funding Rate Arbitrage
What is Funding Rate?
Funding rate is a periodic payment exchanged between traders holding long and short positions in perpetual futures contracts. It helps keep the perpetual futures price aligned with the spot price.
🔑 Key Concepts
- Positive Rate: Longs pay shorts (bullish market sentiment)
- Negative Rate: Shorts pay longs (bearish market sentiment)
- Payment Interval: Usually every 8 hours (00:00, 08:00, 16:00 UTC)
- APR: Annualized rate = funding_rate × 3 × 365 × 100
Example Calculation
If the funding rate is 0.01% per 8 hours:
- Daily rate: 0.01% × 3 = 0.03%
- Annual rate (APR): 0.03% × 365 = 10.95%
- On a $10,000 position: $10,000 × 0.01% = $1 per 8h period
💡 Why It Exists
Unlike traditional futures with expiration dates, perpetual futures never expire. Funding rates incentivize traders to take positions that push the price back toward spot, acting as a self-balancing mechanism.