What Is a ‘Perpetual Swap’ and How Does Its Funding Rate Function?

A perpetual swap is a derivative contract that allows traders to speculate on the future price of an asset without an expiry date, mimicking a spot market position. The funding rate is a periodic payment between the long and short sides of the contract.

If the swap price is above the spot price, the rate is positive, and longs pay shorts. If below, the rate is negative, and shorts pay longs.

This mechanism keeps the perpetual swap price anchored to the spot price.