Why a funding rate can turn negative
A negative funding rate means shorts pay longs when a perpetual trades far enough below spot. The rate tracks the average discount over each interval.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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A perpetual future is a crypto contract with no expiry date. Because it does not settle on a fixed date, exchanges use a periodic funding payment to keep its price near the spot market.
What makes the rate negative?
The funding rate tracks the premium or discount between the perpetual price and the spot index. When the perpetual trades below spot, the gap is a discount. Exchanges set the rate from the average premium or discount over each funding interval. Some exchanges also include an interest-rate component, which can offset a small discount.
Why negative funding can persist
A negative rate often shows heavy short demand or bearish sentiment. Traders who expect a weaker market may keep opening short positions, and that demand can hold the perpetual below spot across many funding intervals. This can happen in slow or trending markets, not only during a sharp drop.
How is it different from interest?
Funding is a balancing payment between traders, not interest on borrowed crypto. A lender does not charge you a loan rate here. The exchange moves the payment from the side that owes to the opposite side.
Frequently asked questions
It is paid at each funding time set by the exchange, which is usually every few hours. The sign can change at the next interval.
Yes. The mechanism does not reset it at the end of a day. It changes when the average premium or discount or the exchange's interest-rate component changes at a funding time.
No. The payment is a transfer between traders, so it carries no promise about price direction. A perpetual can rise or fall while funding stays negative.
If you close before the funding time, you usually do not pay or receive that payment. Check your exchange's cutoff rules, because they differ.
