What Is the ‘Funding Rate’ in a Perpetual Swap and Who Pays It?

The funding rate is a small, periodic payment exchanged between the long and short sides of a perpetual swap contract. It is designed to keep the swap's price anchored to the spot price of the underlying asset.

If the funding rate is positive, long position holders pay short position holders, and vice versa. This payment mechanism is key to the swap's function as it has no expiry date.