What is a funding rate? How to read funding to see whether longs or shorts are crowded
Perpetual futures never expire, so exchanges need a mechanism to keep the contract price close to the real price of the coin. That mechanism is the funding rate: a payment that longs and shorts exchange with each other on a schedule.
Who pays whom
- Positive funding: longs pay shorts. Usually happens when more traders are long and the contract trades above spot.
- Negative funding: shorts pay longs. Usually happens when more traders are short.
The exchange does not keep this money. It moves from one side to the other.
How often it is paid
- Hyperliquid: charged and paid every hour, which is why we show funding as %/hour.
- Binance and many centralized exchanges: usually every 8 hours, some pairs every 4 hours or 1 hour.
When comparing exchanges, convert to the same time period.
A worked example
You are long BTC with a 10,000 USD position and funding is 0.01%/hour.
- Each hour you pay: 10,000 × 0.01% = 1 USD.
- Each day: about 24 USD.
It looks small, but with high leverage and long holding periods, funding can eat a meaningful part of your profit.
What funding tells you
- Very high positive funding: longs are crowded and paying up to stay in. If price turns, many longs can be liquidated at once.
- Deeply negative funding: shorts are crowded. A sudden bounce can squeeze shorts into mass liquidation.
- Low, stable funding: the market is relatively balanced.
Funding is a reference signal, not a buy or sell signal. Read it together with whale positioning and liquidation data.