Funding rate

The funding rate is the small fee that passes between buyers and sellers of a perpetual future, usually every eight hours. When the contract trades above the coin, the buyers are the crowded side and they pay the sellers. When it trades below, the sellers pay. The rate is tiny per payment, a few hundredths of a percent, but it runs around the clock. A rate of one hundredth of a percent every eight hours is about eleven percent a year.

The fee exists to keep the contract close to the coin. It works like a toll on the crowded lane: the more people pile onto one side with leverage, the more that side pays, and the more attractive it becomes to take the other side. That is also why the fee is fattest right before the crowd gets hurt: high funding is a measure of impatience, and impatience is what squeezes feed on.

In the logbook, funding is the income every carry pitch promises to collect. What a test has to check is not whether the fee is paid, which it is, but what the price of the contract does while you collect it. Three attempts at collecting funding across contracts found that the price move was larger than the fee.