How Does the ‘Funding Rate’ Mechanism Work in Perpetual Swaps?

The funding rate is a small payment exchanged between long and short traders, typically every eight hours. If the perpetual swap price is trading above the spot price, the funding rate is positive, and long position holders pay short position holders.

If the swap price is below the spot price, the rate is negative, and shorts pay longs. This mechanism keeps the swap price close to the underlying asset's spot price.