What Are Crypto Funding Rates? A Complete Guide
What Are Perpetual Futures?
Perpetual futures (or "perps") are crypto derivatives contracts that let you trade with leverage without an expiry date. Unlike traditional futures that settle on a fixed date, perps can be held indefinitely. They're the most traded instrument in crypto, with daily volumes often exceeding spot markets.
The catch: since perps never expire, they need a mechanism to stay anchored to the spot price. That mechanism is the funding rate.
How Funding Rates Work
Every 8 hours (on most exchanges), a small payment is exchanged between long and short position holders. This payment — the funding rate — incentivises traders to take the less popular side, pulling the perp price back toward spot.
Positive Funding Rate
Longs pay shorts. The market is bullish — more traders want to be long, so they pay a premium. Going short earns you the funding payment.
Negative Funding Rate
Shorts pay longs. The market is bearish or cautious — more traders want to be short, so they pay a premium. Going long earns you the funding payment.
The rate is typically tiny per period — often 0.01% to 0.03% every 8 hours. But annualised, that compounds to 10-30% APY or more. During volatile markets, rates can spike to 0.1%+ per period (over 100% annualised).
The Carry Trade Strategy
A funding rate carry trade captures the funding payment while hedging out price risk. The basic setup:
- Identify a high funding rate — look for assets with rates significantly above zero (positive) or below zero (negative).
- Open the receiving position — if funding is positive, go short the perp. If negative, go long the perp.
- Hedge with spot — buy the spot asset if you're short the perp (or sell if you're long). This neutralises price risk.
- Collect funding payments — every 8 hours, the funding payment is credited to your account. Your hedge means price movement doesn't affect your P&L.
- Exit when rates normalise — close both positions when funding rates drop below your threshold.
Risks to Consider
Rate Reversal
Funding rates can flip sign. A positive rate that turns negative means you switch from receiving to paying. Monitor rates and exit when the edge disappears.
Liquidation Risk
If you're using leverage on the perp side, a large price move could liquidate your position before the hedge offsets it. Use low leverage (1-2x) and keep adequate margin.
Execution Costs
Trading fees, slippage, and the bid-ask spread eat into your yield. Make sure the annualised rate exceeds your total round-trip costs.
Exchange Risk
Your funds are held on a centralised exchange. Diversify across venues and don't allocate more than you can afford to lose.
Reading FundingKai Data
On FundingKai, every asset shows two numbers: the 8-hour rate (the raw periodic payment) and the annualised rate (the 8h rate × 1,095 periods per year, expressed as a percentage).
We track 10 major assets across Bybit and Binance, updating every 8 hours after each funding settlement. The Opportunities page filters for assets above 5% annualised — our threshold for a meaningful carry trade. The Compare page shows cross-exchange spreads, useful for identifying where to execute.
Start Tracking Funding Rates
See today's rates and find carry trade setups across major exchanges.