Funding on crypto futures: how it works and why it is needed

Have you encountered funding on futures but still don’t understand how it all works? Let’s break it down in detail.

What is this funding, anyway?

Funding ( funding rate ) is simply the percentage that traders pay each other depending on the position they have opened. The essence is simple: the exchange calculates and pays it three times a day — every 8 hours.

How it works:

If funding is positive → traders in longs pay those in shorts

If the funding is negative → short sellers pay long holders

And here's what is important: the calculation is based on the full amount of your position considering the leverage. Did you open a long position of 100 dollars with a hundred times leverage? Then the funding is calculated from 10,000 dollars. With a rate of -0.1%, you will receive 10 dollars, and with +0.1%, you will pay.

Why is this needed at all?

Funding is a mechanism that keeps the price of perpetual futures aligned with the spot price. Without it, the futures price could deviate significantly from the actual price.

The logic is simple: if the price of the futures contract is higher than the spot price, it means that the demand for longs is much greater — traders are aggressively buying. To balance the imbalance, funding increases, and long holders begin to pay short sellers. This creates a dip miracle for new entries.

How to use funding to gauge market sentiment?

Positive funding when the price is rising — a red flag. This means that the majority are in long positions and expect further growth. The market maker is not thrilled to push the price up with such a number of buyers — it is not profitable. A decline or correction is more likely.

Negative funding during a decline — is also a cause for concern. Many short sellers have already opened positions in anticipation of a crash. When everyone thinks the same way, the market often does the opposite.

Main Idea

Funding is not a signal to enter a trade. It is an indicator that shows how overheated or oversold the market is. Use it as an additional check to your strategy, rather than as a primary tool.