What funding is, and who pays whom
A perpetual futures contract has no expiry, so something has to keep its price tethered to spot. That something is funding: a periodic payment between traders, not to the exchange.
When the perpetual trades above spot, longs pay shorts. When it trades below, shorts pay longs. The rate is set by that premium, which is why it rises exactly when a crowded position becomes more crowded.
funding paid = position value × rate per interval × number of intervals
Most venues settle every eight hours, three times a day.
Why annualising it matters
A rate of 0.01% per interval is unreadable as a cost. Annualised it is roughly 11% — a figure that can be compared against something.
| Rate per 8h | Per day | Annualised |
|---|---|---|
| 0.01% (baseline) | 0.03% | ~11% |
| 0.05% | 0.15% | ~55% |
| 0.10% | 0.30% | ~110% |
| 0.30% (extreme) | 0.90% | ~330% |
Elevated funding is not rare. In a strong trend the rate on the crowded side routinely sits several times the baseline for days. At 0.05% the position needs to gain 0.15% a day just to stand still — which means the trade has to be right quickly, not merely right. That is a different requirement from the one most people think they signed up for, and it is why the calculator flags high annualised rates.
Funding is not the same as swap
The forex equivalent, swap, differs in three ways that matter:
- Who sets it. Swap comes from interest-rate differentials and the broker's margin. Funding comes from the premium between the perpetual and spot — a market observable that can flip within hours.
- Who receives it. Swap goes to the broker. Funding goes to traders on the other side.
- How predictable it is. A swap rate is stable for weeks. A funding rate can go from baseline to five times baseline in a day, and back.
The last one is the practical trap. A carrying cost estimated at entry can be several times larger by the third day, and the position has not changed.
The interaction with liquidation
Funding is deducted from margin. On an isolated position that means every payment moves the liquidation price slightly closer.
For a low-leverage position this is negligible. At 20x or more, held through a stretch of elevated funding, it is not — the level you calculated at entry is no longer the level. This is one of the ordinary reasons traders report being liquidated before the price they worked out.