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What Is the Funding Rate Mechanism in a Perpetual Swap Contract?

A periodic payment between long and short traders that keeps the perpetual swap price aligned with the underlying spot price, preventing large deviations.
Greeks.Live21.11.25

What Is the Funding Rate Mechanism in a Perpetual Swap Contract?

The funding rate is a small periodic payment exchanged between long and short position holders in a perpetual swap. Its primary function is to keep the swap contract's price anchored to the price of the underlying spot asset.

If the swap trades at a premium to the spot price, longs pay shorts. If it trades at a discount, shorts pay longs.

This mechanism prevents the derivative price from deviating too far from the spot price.

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