Understanding funding rate calculation is essential for any trader involved in perpetual futures contracts. Unlike traditional futures, perpetual contracts do not have an expiry date — instead, they use a mechanism called funding rates to keep the contract price closely aligned with the underlying spot market price.
This article breaks down how funding rates work, how they're calculated across different contract types, and what you need to know to manage your positions effectively and avoid unexpected costs.
What Is a Funding Rate?
The funding rate is a periodic fee exchanged between long and short traders on perpetual swap contracts. Its main purpose is to anchor the contract price to the global spot price, preventing prolonged deviations.
On platforms like Bybit (and similar mechanisms exist on other exchanges), this fee is settled every 8 hours — typically at:
- 00:00 UTC
- 08:00 UTC
- 16:00 UTC
👉 Learn how funding rates affect your trading strategy and optimize your position timing.
Only traders who hold positions at these exact timestamps are subject to paying or receiving funding fees. If you close your position before the funding time, you won’t pay or receive anything.
Who Pays and Who Receives?
The direction of the payment depends on the sign of the funding rate:
- 🔹 Positive funding rate: Longs (buyers) pay shorts (sellers)
- 🔹 Negative funding rate: Shorts (sellers) pay longs (buyers)
This system incentivizes balance in market sentiment. When demand for long positions is high, pushing the contract price above spot (a condition known as premium), the funding rate turns positive — discouraging more longs and rewarding shorts.
Conversely, when the market is oversold and the contract trades below spot (discount), the funding rate becomes negative, encouraging longs to enter and stabilize prices.
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How Is the Funding Fee Calculated?
The formula varies slightly depending on the type of perpetual contract. Below are the most common formats used across major exchanges.
For Inverse Contracts (e.g., BTCUSD)
These contracts are denominated in cryptocurrency (e.g., BTC), so profits and losses — including funding fees — are paid in the base asset.
Formula:
Funding Fee = Position Value × Funding Rate
Position Value = Number of Contracts / Mark PriceExample:
Trader A holds a long position of 10,000 BTCUSD contracts.
Mark Price = $8,000
Funding Rate = +0.01%
Step 1: Calculate Position Value
10,000 / 8,000 = 1.25 BTC
Step 2: Calculate Funding Fee
1.25 BTC × 0.01% = 0.000125 BTC
Since the rate is positive, longs pay shorts. Trader A pays 0.000125 BTC, which goes directly to counterpart short traders.
For USDT-Margined Contracts (e.g., BTC/USDT)
These are linear contracts where everything — margin, PnL, and funding — is in stablecoins like USDT.
Formula:
Funding Fee = Position Value × Funding Rate
Position Value = Number of Contracts × Mark PriceExample:
Trader A holds 10 BTC/USDT long contracts
Mark Price = $8,000
Funding Rate = +0.01%
Step 1: Calculate Position Value
10 × $8,000 = $80,000
Step 2: Calculate Funding Fee
$80,000 × 0.01% = **$8 USDT**
Again, because the rate is positive, Trader A pays $8 USDT to short holders.
For USDC Perpetual Contracts
Functionally identical to USDT-margined contracts but settled in USDC instead.
Formula:
Same as USDT contracts:
Funding Fee = Position Value × Funding Rate
Position Value = Contracts × Mark PriceExample:
Trader A holds 10 BTC long contracts
Mark Price = $50,000
Funding Rate = +0.01%
Position Value = 10 × $50,000 = $500,000
Funding Fee = $500,000 × 0.01% = 50 USDC
Trader A pays 50 USDC to short-side traders.
👉 See real-time funding rates and plan your entries around low-cost intervals.
Important Risk Considerations
While funding fees may seem small per cycle (often less than 0.1%), they can accumulate significantly over time — especially for leveraged or large-size positions.
Here’s what you must know:
- ✅ Fees are deducted from your available balance
- ❌ If unavailable balance is insufficient, it’s taken from position margin
- ⚠️ Deducting from margin reduces your equity, bringing your liquidation price closer to the mark price
- 📉 In extreme cases, even profitable positions can show negative margin if funding drains exceed available funds — though liquidation may not occur if unrealized PnL supports the position
Always monitor your exposure during high-volatility periods when funding rates can spike temporarily due to price dislocation.
Exchange platforms may also adjust funding rate caps during market shocks to bring prices back in line with spot markets.
Each trading pair has its own funding interval and limits, so always verify current parameters before opening long-term positions.
How to Check Your Funding Fee History
You can review past funding payments or receipts through your trading interface:
On Unified Trading Accounts (UTA):
Go to:
- Transaction Log → Filter by "Settlement" type
- Click individual records to see detailed funding amounts
For Non-UTA Users:
Navigate to:
- Contract Trading History
- Select transaction type: “Funding”
- View all paid/received fees
In transaction logs:
- A positive value means you paid the fee
- A negative value means you received payment
Also check your Asset History for full transparency on account balance changes related to derivatives trading.
Frequently Asked Questions (FAQ)
Q: Do I always pay funding fees if I hold a position?
A: No — only if you hold a position at the exact funding timestamp (e.g., 08:00 UTC). Closing even one second before avoids the fee.
Q: Can funding rates be predicted?
A: While not guaranteed, persistent premiums or discounts between contract and spot prices often signal upcoming positive or negative rates. Many platforms display estimated next rates.
Q: Why did my margin decrease even without price movement?
A: This could be due to a funding fee deduction taken from your margin when your available balance was too low.
Q: Are funding fees taxable?
A: Tax treatment varies by jurisdiction. Generally, fees paid or received may count as trading expenses or income. Consult a tax professional for guidance.
Q: Can I profit from collecting funding instead of paying it?
A: Yes — traders sometimes take positions specifically to collect negative funding rates (i.e., shorts when rate is negative). This is known as funding rate arbitrage, but carries market risk.
Q: Does every crypto exchange use the same funding schedule?
A: Most major exchanges use 8-hour intervals (UTC-based), but timing and calculation methods can vary slightly. Always confirm specifics per platform.
Final Tips for Managing Funding Costs
- Monitor real-time funding rates before opening long-term positions
- Avoid holding through high-positive funding periods unless bullish conviction is strong
- Use stop-losses and position sizing to reduce margin pressure from recurring fees
- Consider closing and reopening positions just after funding time to reset cost exposure
👉 Stay ahead with tools that help you track and forecast funding trends across top trading pairs.
By understanding how funding rate calculation works across inverse, USDT, and USDC perpetual contracts, you gain better control over your trading costs and risk profile. Whether you're scalping or holding for days, being aware of these mechanics helps you trade smarter — not harder.