TradingIntermediate#Derivatives#Alpha
Funding Rate
F
Definition
A periodic transfer between open long and short perpetual-futures positions, calculated under a venue's rules to encourage the contract price toward its reference price. It is a carrying cost or receipt, not yield, sentiment proof, or a reversal signal.
Source reviewed
- dYdX: default funding rates opens in a new tab
Supports: dYdX explains that its funding payments incentivize perpetual prices toward an oracle price and that calculation parameters are specific to its market and governance rules.
- Kraken: US perpetual futures opens in a new tab
Supports: Kraken explains that perpetual funding is a periodic payment between traders based on the difference between perpetual and spot prices and that contract mechanics include fees and liquidations.
- dYdX: perpetual parameters opens in a new tab
Supports: dYdX documents that perpetual contracts use funding to encourage alignment with an underlying index price and exposes market parameters that can vary by governance.
Concept Diagram
Key Takeaways
1
Funding is a venue-defined periodic transfer between perpetual long and short positions.
2
Verify the direction, interval, reference price, premium calculation, cap, settlement, and position-notional rules for the exact market.
3
Funding does not prove position counts, leverage, conviction, sentiment, or a future price path.
4
Include price, spread, fees, collateral, liquidation, and execution risk before treating a payment as carry.
Practical Example
A trader holds a perpetual position and records the venue's current funding rate, next timestamp, interval, notional basis, index price, margin, and liquidation threshold. They calculate the possible payment for several intervals alongside a price move and fees. They do not infer a reversal or treat the displayed rate as a guaranteed return.
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Related Terms
Trading
Short SqueezePressure on short sellers to close positions after a sharp price rise or difficulty borrowing the security. Their purchases can add upward pressure, but a price rise or short-interest figure alone does not prove that a squeeze is occurring or predict one.
Strategy
Funding ArbitrageA position designed to offset some spot-price exposure while receiving or paying a perpetual contract's venue-defined funding transfers. It is a basis and execution trade, not fixed income, a guaranteed yield, or a fully market-neutral position.
Trading
DerivativesA contract whose value or payoff is linked to an underlying asset, rate, index, event, or another reference. It is a separate contractual position, not the same thing as holding the referenced asset.
Trading
LiquidationA contract- or platform-defined process that closes or transfers a leveraged position when collateral no longer meets its maintenance requirement. The trigger, price source, penalties, partial-close rules, and loss outcome vary by product and venue.
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