What a funding rate tells you, and what it doesn't
Explainer · Leverage desk · Published 13 October 2026 · By TradeSignalsHQThe Leverage desk on our homepage lists the hourly funding rate for each coin. This guide explains where that number comes from, what it can reasonably tell you about the market, and the many things it cannot. It is educational only: nothing here is a recommendation to open, close or size any position.
In one sentence. Funding is a periodic payment between the long and short sides of a perpetual contract that keeps its price close to the underlying asset; a high rate tells you that one side is paying heavily to hold its position, which is a sign of crowding, not a forecast.
What is a perpetual contract, and why does it need funding?
Most futures contracts expire on a set date, and on that date their price has to meet the price of the underlying asset. A perpetual contract has no expiry. The U.S. Commodity Futures Trading Commission, in a 2026 policy statement on listing these products, describes perpetual contracts as derivatives with no fixed expiration date, and describes the funding rate as a periodic payment between the long and short sides that is designed to keep the contract's price closely aligned with the underlying asset's price (CFTC, Federal Register, 3 June 2026).
The logic is simple. If the perpetual trades above the spot price, the rate turns positive and longs pay shorts, which makes holding a long more expensive and holding a short more attractive. If it trades below spot, the rate turns negative and shorts pay longs. The payment is the pressure that pulls the two prices together.
How is the rate calculated each hour?
Each venue publishes its own method. Our table uses Hyperliquid's public data, and Hyperliquid's documentation states that funding is paid every hour; that the premium (how far the contract trades from the oracle price) is sampled every five seconds and averaged over the hour; that the rate equals that average premium plus a clamped interest-rate term, with the interest component set at 0.01% every eight hours; and that funding is capped at 4% per hour. It also says funding is purely peer-to-peer, with no fee collected on the payments (Hyperliquid docs: Funding).
Two consequences follow. First, a rate shown "per hour" looks tiny, so we also show it annualised (hourly × 24 × 365) to make it comparable with other costs. Second, the interest component alone works out to 0.00125% an hour, so when the contract trades close to the oracle price the rate sits near that baseline; the information is in how far the rate moves away from it. Other exchanges use their own intervals and formulas, so the same coin can show different rates on different venues.
What does that look like in dollars?
Assumptions for this worked example: a $10,000 position, a funding rate that stays constant, and a position value that does not change. Real rates change every hour and position values move with the price, so treat this as arithmetic, not a forecast.
| Hourly rate | Annualised | Who pays | Per hour on $10,000 | Over 30 days |
|---|---|---|---|---|
| +0.00125% (interest term only) | 10.95% | Longs pay shorts | $0.125 | $90 |
| +0.01% | 87.6% | Longs pay shorts | $1.00 | $720 |
| −0.005% | −43.8% | Shorts pay longs | $0.50 received by longs | $360 received |
| 4% (Hyperliquid cap) | — | Longs pay shorts | $400 | — |
An hourly rate of +0.01% sounds like nothing, but held for a month it costs a leveraged long $720 on a $10,000 position — before any trading fees and before the price moves at all. That is why funding matters most to people who hold leveraged positions for days or weeks.
What can a hot funding rate tell you?
A persistently high positive rate means many traders are willing to pay a lot to stay long with borrowed exposure. That is crowding: the trade is popular, and it is expensive to hold. Research on the closely related futures "carry" — the gap between dated futures and spot prices — gives some context. Economists at the Bank for International Settlements found that crypto carry can become very large, up to 60% a year, and varies strongly over time; they link it to trend-chasing by smaller investors seeking leveraged upside in boom periods, and to a shortage of arbitrage capital willing to take the other side, partly because margin spikes and liquidations make that side risky in drawdowns. They also report that a high carry predicts future price crashes (BIS Working Paper 1087, "Crypto carry", 2023). That paper studies dated futures, not perpetual funding, but the mechanism — leveraged demand bidding up the derivative over spot — is the same one funding measures.
What doesn't it tell you?
- When. Crowded trades can stay crowded, and an elevated rate can persist before anything happens. Funding describes positioning now; it does not say when positioning will change.
- Which way. A crowded long can unwind through a sharp fall, or the rate can cool off as the price drifts sideways and new shorts arrive. Both are possible.
- The whole market. Each venue has its own traders and formula. One exchange's rate is a sample, not a census.
- Your own risk. Funding is only one cost. With leverage, an ordinary move can liquidate a position long before funding adds up; our liquidation distance tool shows how close that can be.
How should you judge a "funding signal" posted in a channel?
Telegram and social channels, including ours, sometimes mention a funding flip or an extreme rate. Treat any such post as context to check, not an instruction. A few questions help:
- Can you verify the number? A rate should come with its venue and time, so you can look it up yourself.
- Is the record complete? Look for losing ideas as well as winners, with dates. Screenshots are easy to fake: the CFTC warns that fraudsters send fake screenshots and fake trading information to make a scheme look profitable (CFTC advisory on relationship investment scams).
- Who contacted whom? The same advisory says not to make investment decisions based on advice from anyone who makes unsolicited contact online, never to rely solely on testimonials, and that promises of high returns with little or no risk are classic warning signs of fraud.
- Is someone pushing you to act fast? FINRA notes that pump-and-dump promoters increasingly communicate through texts and encrypted messaging apps, that the resulting crash can happen in seconds, and advises not to accept investment advice from strangers, especially on social media (FINRA: pump-and-dump scams).
Why do regulators worry about leveraged crypto derivatives?
The CFTC points out that virtual currencies are more volatile than traditional currencies and that profits and losses from this volatility are amplified in margined futures contracts (CFTC: understand the risks of virtual currency trading). In the United Kingdom, the Financial Conduct Authority banned the sale, marketing and distribution of derivatives and exchange-traded notes referencing certain cryptoassets to retail consumers from 6 January 2021, citing extreme price volatility, inadequate understanding by retail consumers, market abuse and financial crime in the secondary market, and the lack of a legitimate investment need (FCA press release, October 2020). Rules differ by country; check what applies where you live before using any derivatives platform.
The short version
Read funding as a thermometer for leveraged positioning. High and rising means the long side is crowded and paying for it; deeply negative means the same for shorts. Neither tells you the next price move, and neither replaces a plan that limits how much you can lose.
Sources
- CFTC, Policy Statement Concerning the Listing of Perpetual Contracts, Federal Register, 3 June 2026.
- Hyperliquid, Funding (documentation, read 13 October 2026).
- Schmeling, Schrimpf and Todorov, Crypto carry, BIS Working Paper 1087, April 2023.
- CFTC, Understand the Risks of Virtual Currency Trading.
- CFTC, Relationship investment scams.
- FINRA, Pump-and-dump scams.
- FCA, FCA bans the sale of crypto-derivatives to retail consumers.
Risk warning. Educational content only, not financial or investment advice. Crypto assets are highly volatile and you can lose all the money you put in. Leverage can wipe out a position on an ordinary daily move.