Funding Rate

A periodic fee exchanged between long and short traders to balance market positions.

What is Funding Rate?

The funding rate is a small, recurring fee (typically calculated every 1–8 hours) paid between traders holding long or short positions in perpetual swaps on Perp DEXs. It ensures market equilibrium by discouraging overcrowding on one side of the trade. If more traders are long (betting on price increases), they pay the funding rate to short traders, and vice versa, based on the difference between the mark price and index price.

For example, on Hyperliquid, a positive funding rate (e.g., 0.01% per hour) means longs pay shorts, incentivizing more shorts to enter and stabilize the market. Funding rates are transparently calculated via smart contracts and rely on oracle price feeds for accuracy. High funding rates can signal market imbalances, prompting traders to adjust strategies to avoid excessive costs.