Funding Rate Explained: Where It Comes From, Who Pays, and Why Day Traders Should Care
All perpetual contracts, crypto and traditional, use a funding rate settled every hour. This guide covers where the rate comes from, who pays and how to calculate it.
1. What Is the Funding Rate?
A perpetual contract has no expiry date. A contract with an expiry date converges with the spot price when it expires, but a perpetual contract never does.
Over time, the perpetual price can drift further and further from the spot price. The funding rate is the tool that pulls the two prices back together.
The mechanism is simple. When the perpetual price is above the spot price, buying pressure is stronger: holders of long positions pay funding every hour, and holders of short positions receive it. When the perpetual price is below the spot price, it works the other way round: shorts pay and longs receive. Holding the side that pushes the price away becomes more expensive, so the price is pulled back.
MC Markets uses the funding rate of a reference market.
2. Core Rules
| Item | Rule |
|---|---|
| Rate source | The funding rate of a reference market |
| Settlement | Once every hour, on the hour |
| Cap | Set by the reference market, up to 4% per hour (in calm markets usually about 0.01% per 8 hours, or about 0.00125% per hour; the cap is only reached in extreme conditions) |
| Calculation base | Position size × reference spot price × rate |
3. Who Pays and Who Receives
The sign of the rate decides who pays:
| Rate | Meaning | Long | Short |
|---|---|---|---|
| Positive | Perpetual price > spot price | Pays | Receives |
| Negative | Perpetual price < spot price | Receives | Pays |
| Zero | Perpetual price = spot price | Nothing | Nothing |
Keep in mind that the cost of holding a position is not fixed. In some hours you may pay, and in others you may receive.
The rate depends on supply and demand in the market. It cannot be predicted and can change quickly.
The market bar at the top of the trading page shows the funding rate for both longs and shorts, along with a countdown to the next settlement. Hover over it to see the annualized figures.
4. A Worked Example
Suppose you hold a long position of 2 BTC, the BTC reference spot price is $60,000, and the notional value of the position is $120,000.
In a calm market, the funding rate for this hour is +0.00125% (about 0.01% per 8 hours):
Funding for this hour = 2 × $60,000 × 0.00125% = $1.50
The rate is positive and you are long, so you pay $1.50 for this hour. Held at this rate for a full year, the total comes to about 11% of the position's notional value, so include it in your costs if you plan to hold a position for a long time.
When the rate is negative, for example −0.00125%, you are long, so you receive $1.50 for the hour.
In an extreme market, the rate can rise to the cap of 4% per hour:
Funding for this hour = $120,000 × 4% = $4,800
4% per hour is the maximum; the reference markets of some instruments have a lower cap. When the market moves sharply, keep an eye on the live rate in the market bar at the top of the trading page and plan your positions accordingly.
5. It Applies to All Perpetual Contracts
Perpetual contracts on traditional assets (forex, gold, indices, crude oil and US stocks) use the funding rate too. The calculation, the direction of payment and the settlement frequency are the same as for crypto perpetuals; the actual rate and cap follow each instrument's reference market, and the live rate is shown on the trading page.
6. A Note for Day Traders
Even if you trade within the day, a position that is open at an hourly settlement time can pay or receive funding.
The countdown in the market bar at the top of the trading page shows how long until the next settlement, so check it before holding a position across the hour.
Once you hold a position, the position list shows the net funding paid or received since you opened it. Every payment is recorded under Funding History in the records area of the trading page, which you can filter by date; on a computer, once logged in, you can also export it as CSV.
Further Reading
- A Guide to Trading Perpetual Contracts: Instruments, Specifications, Orders and Trading Hours, From Open to Close
- Why Doesn't the Fill Price Match What You Expected? Dynamic Trading Spread, Market Slippage and Slippage Control
- Trading Fees Explained: Commissions, Holding Costs and Instant Swap Fees
Risk Warning
The funding rate cannot be predicted and can change quickly, and the longer you hold a position the more funding can add up. Only use funds you can afford to lose.
Disclaimer
This article is for general informational and educational purposes only and may not apply to the regulations or products available in your region. It does not constitute investment, financial, or trading advice of any kind, nor an offer, solicitation, or recommendation to buy, sell, or hold any digital asset.
Trading digital assets involves high risk, prices can be extremely volatile, and you may lose all of your invested capital. Leveraged trading can result in losses exceeding your initial deposit. Past performance is not indicative of, and does not guarantee, future results.
You should make investment decisions independently based on your own financial situation and risk tolerance, and consult a licensed professional adviser where necessary. While we strive to ensure the accuracy of the information in this article, MC Markets accepts no liability for any errors or omissions, or for any loss you may suffer from using or relying on this information.