Crypto funding rates determine payments between long and short holders of certain perpetual futures contracts. They help create an incentive for perpetual prices to stay near a reference market price. In the usual sign convention, positive funding means longs pay shorts; negative funding means shorts pay longs.
Funding can change the result of a trade even when the asset price barely moves. To estimate its effect, you need the position value, payment direction, applicable rate and accrual or settlement rules.
What a funding rate tells you
A rate such as +0.02% needs a time basis. It might be quoted for a particular settlement window, or expressed on a standard time basis while payments accrue differently.
Read the rate together with the product rules. A smaller number on one contract does not establish that it costs less to hold than another contract.
For example, a hypothetical rate of 0.01% per hour adds up to 0.08% over eight hours if it stays constant. A different contract quoting 0.02% for an eight-hour period would be cheaper over that period under the same exposure and payment direction.
The comparison changes if either rate changes. Funding is a variable holding cost, not a fixed quote for the life of your trade.
How to calculate a sample funding payment
For a simple linear contract that applies a per-settlement rate to notional value:
Funding payment = position notional value × applicable funding rate
Suppose a fictional BTC perpetual position is worth 12,000 USDT and its settled funding rate is +0.02% for the relevant period.
12,000 × 0.0002 = 2.40 USDT
Under the usual convention, the long side pays 2.40 USDT and the short side receives a corresponding amount, subject to the product's collection and distribution rules.
If the same notional value and rate applied to three settlements, the total would be 7.20 USDT. That is 0.06% of the 12,000 USDT exposure. Relative to hypothetical starting margin of 1,200 USDT, it is 0.6%.
The calculation uses exposure rather than only the amount deposited as margin. A rate that looks small can therefore represent a larger percentage of the collateral supporting a leveraged trade.
All figures are illustrative. They are not current funding rates or MERCADE contract parameters.
Settlement schedules are not universal
Some products assess funding at discrete settlement times. Others accrue it continuously. Even a rate displayed on an eight-hour basis does not necessarily mean you can avoid all funding by closing before an eight-hour timestamp.
That distinction changes the questions you should ask:
- Is the displayed rate a period rate, a standardized quote or an annualized figure?
- Does funding accrue while the position is open?
- Is payment determined by a snapshot at a settlement time?
- Is the displayed next rate estimated or already fixed?
Use the documentation for the exact contract. An exchange's rule for one product should not be copied to every market on that exchange, much less another platform.
Funding is separate from entry and exit costs
Your trade can involve more than one cost category. Keep a record that separates price P&L from the charges and payments that adjust it.
For a simplified linear trade:
Net result = price P&L − trading fees − funding paid + funding received
Slippage is already reflected when price P&L uses actual fill prices; avoid subtracting the same execution difference twice.
Suppose your hypothetical trade earns 18 USDT from its entry and exit prices. If total trading fees are 8 USDT and funding paid is 7.20 USDT, the result is:
18 − 8 − 7.20 = 2.80 USDT before any other applicable costs
The position made money from price movement, but most of that amount went to costs. This is why a screenshot of gross P&L is incomplete evidence of a strategy's profitability.
Receiving funding does not make a trade safe
Assume you receive the example's 2.40 USDT funding payment. An adverse 1% move against a 12,000 USDT linear position creates a 120 USDT price loss before other effects. The funding receipt offsets only a small part of it.
The rate can also change sign while you hold. A strategy entered to collect funding can become one that pays it. If the position uses margin, adverse price moves can create liquidation risk regardless of whether a funding payment is expected.
Frequently asked questions
Is the funding rate a prediction of the next price move?
No. It describes the payment mechanism for a particular product and period. A positive rate alone does not establish that the asset will rise or fall next.
Does every crypto contract have funding?
No. Identify the contract type and its costs. Do not assume all contracts presented on a platform are perpetual futures or use the same mechanism.
Can I compare annualized funding rates directly?
Only after checking how the annualized figures were calculated. An extrapolation of a recent variable rate is not a promised annual payment or return.
Where should I check the actual funding cost?
Check the exact contract's specifications, current rate and payment records. Our MERCADE contract trading overview explains which terms need checking before opening a position.
Educational information only. Funding receipts do not guarantee a positive trading result. Leveraged positions can incur substantial losses.
