The funding rate is a scheduled payment between the long and short sides of a perpetual futures contract. It is not a fee the exchange charges and not a prediction of where price goes next.
A perpetual futures contract has no expiry date, so nothing forces its price to meet the underlying spot price at a settlement. The funding rate is the mechanism that stands in for that missing deadline: at regular intervals, one side of the contract pays the other, which nudges the contract price back toward the price of the asset it tracks.
The payment moves between traders, not to the exchange. If you do not hold a perpetual position at the moment funding is exchanged, none of this applies to you. Nothing on this page is a recommendation to open one.
Funding is signed: it has a direction as well as a size.
An ordinary futures contract converges toward spot as its delivery date approaches. A perpetual contract never matures, so there is no convergence event. Without some periodic cost attached to being on the crowded side, the contract can drift away from the asset and stay there.
Funding makes that drift expensive for one side and rewarding for the other, so traders have a reason to bring the price back into line. That is its whole job. It is a piece of market plumbing, not a view on the market.
It does not tell you the direction of the next move, how long a move will last, or whether a position will be profitable. It does not tell you what a specific trader paid, whether leverage was involved, or how much risk is sitting in the book. It is a snapshot of the balance between two sides at one scheduled moment.
Treating it as a signal is a category error. A rate can stay one-sided through a rally, a sell-off or a flat session, and reading a forecast into it adds information that was never there.
On an exchange dashboard, it appears as a scheduled payment attached to an open perpetual position. In trading chat it shows up as shorthand for a mood swing: a rate flipping sign becomes one more reason to declare the run over or declare it back again. That usage is closer to banter than to reporting, which is why a So Over / So Back tee can carry the joke without carrying any numbers.
The crypto slang glossary covers the chat words that surround it; this page is only about the mechanism behind one of them.
These get grouped together because they all show up in the same screenshots, but they describe different things. Slippage is the difference between the price you expected and the price your order actually filled at. Liquidation is a leveraged position being closed because the margin behind it ran out. Rekt is chat slang for having taken a bad loss. Funding is a recurring payment while a perpetual position stays open.
Only one of the four is an ongoing cost of holding, and none of them are interchangeable in a sentence. If a chart caption mixes them up, the caption is being loose with words, not describing a new mechanism.
ZenZen prints trading in-jokes on shirts, socks and mugs. People search for the words behind the jokes, so we write plain-English definitions for them. This page exists to answer a search, not to teach a strategy: it contains no rate figures, no price targets and no trading advice.
For the rest of the vocabulary, see the crypto slang glossary, the slippage explanation, the rekt definition, the candlestick chart guide and the gift guide.
| What this page is | A plain-English definition of a perpetual futures mechanism. |
|---|---|
| Who it is for | Anyone who saw "funding rate" on a dashboard or in a chart comment and wants the meaning without the jargon. |
| What it does not cover | No rate figures, no venue formulas, no price predictions, no trading strategy. |
| Advice | None. Definitions only. Nothing here is financial advice. |
Funding rate is a periodic payment between the long and short sides of a perpetual futures contract. It is not a fee the exchange charges and not a trading signal; it exists to keep the contract price close to the underlying spot price.
When the rate is positive, traders holding long positions pay those holding short positions. When it is negative, shorts pay longs. The exchange only runs the transfer; the interval and the formula are set by each venue.
No. A trading fee is charged by the venue when you place or close an order. Funding is a transfer between traders that happens on a schedule while a perpetual position is open. If you hold no perpetual position, there is no funding payment to make.
No. Funding describes the balance between the two sides of the contract at a point in time. It does not predict direction, it does not guarantee a profit, and it should not be read as a buy or sell signal.
No. Liquidation is when a leveraged position is closed because the margin backing it ran out. Funding is an ongoing payment while a position stays open. They are different mechanisms and one does not imply the other.
If your whole feed is one long argument about which side is crowded, the Buy High, Sell Low tee is the honest summary. The rest of the range is in the crypto shirts shop.
See the gift guide →