What Is the Funding Rate in a Perpetual Futures Contract?

The funding rate is a periodic payment made between long and short traders in a perpetual futures contract. Its primary purpose is to keep the perpetual contract's price anchored to the price of the underlying spot asset.

If the perpetual price is higher than the spot price, the funding rate is positive, and long traders pay short traders. If the perpetual price is lower, the rate is negative, and shorts pay longs.

This mechanism prevents the perpetual contract from permanently deviating from the spot price.