The funding rate is a mechanism unique to perpetual futures contracts. Understanding it helps you avoid unnecessary costs. After registering on Binance, you can check real-time funding rates on the futures trading page.
What the Funding Rate Does
Perpetual contracts have no expiration date, so to keep the contract price from deviating too far from the spot price, exchanges designed the funding rate mechanism. In simple terms, long and short sides periodically pay a fee to each other.
How It's Collected
Binance's funding rate settles every 8 hours at UTC 00:00, 08:00, and 16:00. Only users holding positions at the settlement moment pay or receive the funding fee.
Positive vs. Negative Rates
- Positive rate: Longs (bulls) pay shorts (bears), indicating stronger bullish sentiment in the market
- Negative rate: Shorts pay longs, indicating stronger bearish sentiment
Calculation Method
Funding fee = Position value x Funding rate
For example, if you hold a 10,000 USDT long position and the current funding rate is 0.01%, you pay 10,000 x 0.01% = 1 USDT.
Impact on Trading
The funding rate looks small, but it accumulates over time for long-held positions. If the rate remains positive and you hold a long position, you pay three times a day -- after a month, it could add up to a significant cost. So when holding positions long-term, pay attention to funding rate changes.
How to Use the Funding Rate
Some traders take contrarian positions when funding rates are extremely high to earn the funding fee. However, this strategy requires extensive experience and is not recommended for beginners. Download the Binance APP to check real-time funding rates for each trading pair.