Funding rate in crypto: how it works and how to read it
What the funding rate is on perpetual futures, who pays whom, how Binance's 8-hour interval differs from hourly Hyperliquid and how to annualize funding.
Contents
The funding rate is a recurring payment between long and short holders of perpetual futures that keeps the contract price close to the spot price. When funding is positive, longs pay shorts; when it is negative, shorts pay longs. The higher and longer a positive rate persists, the more leverage sits on the long side and the greater the risk of a sharp pullback.
Below we explain how funding works on Binance and Hyperliquid, how to annualize it, and how to use it to spot an overheated market.
What is the funding rate in crypto?
A regular futures contract has an expiry date, and its price converges with the underlying by then. A perpetual future (a "perp") has no expiry: you can hold the position indefinitely. So it needs a different mechanism to stop the contract drifting away from spot. That mechanism is the funding rate.
BitMEX launched the first Bitcoin perpetual swap on 13 May 2016. Since then perps have become the most traded crypto derivative, and funding one of the main gauges of market sentiment.
The logic is simple, as Binance Academy explains:
- Perp above spot → positive rate → longs pay shorts. Holding a long gets more expensive, opening a short gets more attractive, and the contract price is pulled back toward spot.
- Perp below spot → negative rate → shorts pay longs. The mechanism works the other way.
Note that the exchange does not collect funding itself. On Binance, according to its rules, payments go directly between traders holding opposite positions, with no exchange fee.
How the funding rate works on perpetual futures
The rate has two parts: an interest rate and a premium.
The interest rate is fixed. On Binance it is 0.03% per day, or 0.01% per 8-hour interval. It nominally reflects the difference in borrowing costs between the dollar and the coin.
The premium measures how far the perp trades above or below the index price. The exchange samples it many times per interval and averages it.
Binance's formula (exchange FAQ):
Funding rate = average premium + clamp(interest rate − average premium, −0.05%, +0.05%)
The clamp limits the adjustment to ±0.05%. In practice, if the premium is small, the rate "sticks" to the base 0.01% per 8 hours. That is why 0.0100% on Binance is neutral background, not a sign of a bull market.
What a trader pays. Payment = position notional × rate. Example: a $10,000 long at 0.01% per 8 hours costs $1 per interval, $3 per day. At 0.1%, that becomes $10 per interval and $30 per day.
When it is paid. Only if the position is open at the funding timestamp. On Binance, if you close before funding time, you neither pay nor receive anything.
Binance vs. Hyperliquid: 8 hours vs. 1 hour
The main trap when comparing exchanges is the different funding interval. The same "0.01%" on two venues can mean very different holding costs.
| Binance (USDⓈ-M, BTCUSDT) | Hyperliquid (BTC) | |
|---|---|---|
| Interval | 8 hours: 00:00, 08:00, 16:00 UTC | every hour |
| Interest component | 0.01% per 8h (0.03% per day) | 0.01% per 8h = 0.00125% per hour |
| Premium | averaged over 8 hours | sampled every 5 seconds, averaged over the hour |
| Limits | when the cap is hit, the interval can switch to 1 hour | capped at 4% per hour |
| Base rate, annualized | ~10.95% | ~10.95% simple, 11.6% compounded |
Sources: Binance, Hyperliquid docs.
Hyperliquid computes the rate with the same "8-hour" formula but pays one-eighth of it every hour. So to compare with Binance, multiply Hyperliquid's hourly rate by 8. That is what we do in the Market pulse section, where funding on Binance, Bybit, OKX and Hyperliquid is put on a common basis.
The interval can differ not only between exchanges but between contracts on the same exchange. Binance, for instance, says that when a rate hits its cap it may move the contract to hourly settlement, and switch back once the rate calms down. Always check the interval before comparing.
How to annualize funding
An annualized rate (APR) is handy because you can compare it with deposit, bond or staking yields.
For 8-hour funding: rate × 3 × 365. - 0.01% × 1,095 = 10.95% a year. - 0.05% × 1,095 ≈ 55% a year. - 0.1% × 1,095 ≈ 110% a year.
For hourly funding: rate × 24 × 365. - 0.00125% × 8,760 ≈ 10.95% a year.
That is a simple (non-compounded) annual rate. Hyperliquid's docs quote 11.6%, which is the same base rate compounded hourly. For comparing exchanges, the only thing that matters is calculating the same way everywhere.
You can also go the other way. The "100% annualized" reported in February 2024 means roughly 0.09% per interval on an 8-hour contract (100% ÷ 1,095), about nine times the 0.01% base rate.
Annual figures are a convention. The rate changes every few hours, and 100% APR held for one day costs a long about 0.27% of the position, not 100%.
How to read an overheated market from funding
Funding shows which side has more demand for leverage. On its own it does not say where price will go, but it hints at how fragile the setup is.
Persistently high positive funding. There are many leveraged longs willing to pay a lot to keep their positions. Any drop triggers liquidations, which sell into the market and deepen the move. In October 2021, Glassnode warned that funding was at the level seen just before the early-September flush, and that the May sell-off that year had also been preceded by elevated funding.
High funding is not a timer. On 27 February 2024, annualized funding on Binance's BTC perp topped 100% for the first time in at least a year, with Bybit at 95% and Deribit at 56% (Velo Data and CoinGlass figures). Yet Bitcoin kept climbing, from about $57,000 at the 27 February close to about $73,000 by 13 March 2024 (daily prices from Coin Metrics). Overheating can last for weeks.
Negative funding. There are more shorts than longs, and bears pay to stay in. If price stops falling at the same time, the market risks a short squeeze: forced short covering pushes price up.
Divergence between price and funding. Price makes a new high while funding is lower than at the previous high: the rally relies less on leverage and more on spot. Price falls while funding stays high: longs keep "catching the knife", and pressure may continue.
Funding and open interest together. A high rate plus rising open interest is a picture of leverage building up: new positions are opening, mostly long. That is exactly the combination Glassnode described in October 2021, noting open interest near all-time highs.
Who earns funding, and why the rate doesn't run away forever
High funding has a natural brake: arbitrage. When funding is strongly positive, a trader can buy Bitcoin spot and open an equal-sized short on the perp at the same time. Price barely matters for this position: a spot loss is offset by the short's gain and vice versa. Meanwhile the short collects funding from longs every 8 hours (or every hour). This is called basis or cash-and-carry trading.
The higher the rate, the more capital flows into this trade, the more shorts appear on the perp and the stronger the pressure pulling the contract back to spot. That is why very high funding rarely lasts: arbitrageurs "eat" it. If it does persist, demand for leveraged longs is strong enough that even arbitrage cannot keep up.
The practical takeaway: funding is the price of leverage, not a forecast. It shows how much traders are willing to pay for a position right now and says nothing about who will be right a week later.
How to use it
- Compare with the base. 0.01% per 8 hours (≈11% APR) is the default neutral. Look at the deviation from that base and how long it lasts, not at the absolute number.
- Check several exchanges. Overheating on one venue may be a local imbalance; on all of them, the signal is broader. The Market pulse shows funding on four exchanges, annualized.
- Mind the interval. Multiply Hyperliquid's hourly funding by 8 to compare with an 8-hour rate, or annualize everything.
- Put liquidations next to it. The sharpest moves happen when skewed funding meets a wave of liquidations. A live Binance liquidation feed is also in the Market pulse.
- Don't use it as your only signal. Funding is just one of eight components of our Market temperature: −10% APR scores 0 and +40% scores 100. That is our scale for a composite reading, not a generally accepted threshold.
- Factor in options. Before large Deribit expiries, check max pain and open interest; for the big picture, see MVRV and other cycle indicators.
- If you hold a leveraged position, count the cost. With high funding, holding a long for weeks can eat a noticeable share of the profit.
Current Binance funding is in the key-numbers strip on the home page, the daily outlook is in the Forecast section, and coin data is on the Bitcoin page. This article is educational and is not investment advice.
FAQ
What is the funding rate in simple terms?
It is a periodic payment between longs and shorts in perpetual futures. A positive rate means longs pay shorts; a negative rate means the opposite. It keeps the contract price close to spot.
How often is funding paid?
On Binance, every 8 hours (00:00, 08:00 and 16:00 UTC); on Hyperliquid, every hour. Some contracts and exchanges use other intervals.
What is a normal Bitcoin funding rate?
The base rate on Binance and Hyperliquid is 0.01% per 8 hours, about 11% a year. Values well above that base, held for days, indicate heavy leverage on the long side.
How do I annualize the funding rate?
Multiply an 8-hour rate by 1,095 (3 × 365) and an hourly rate by 8,760 (24 × 365). For example, 0.01% per 8 hours ≈ 10.95% a year.
