Trading · 65 / 86 · 2 min
Perpetuals and funding
A perpetual is a derivative with no expiry. Funding is a fee paid between longs and shorts so the contract price stays near the spot price. You can pay it all night.
Funding keeps the contract near the spot price. You can pay it all night.
A worked case
A person holds a perpetual overnight because there is no expiry to worry about. Funding is against them every eight hours. The price goes their way by a little. The funding was more. No expiry meant the fee did not expire either.
What it is
You do not hold the coin. You hold a contract that pays or takes as the price moves. The venue, or the contract, can liquidate you.
The fee that runs
When the crowd is crowded on one side, that side pays the other. A position that looks flat on price can still bleed funding.
Read the funding interval and the current rate. Add it to the fee check. It is a cost.
No expiry means the fee does not expire
A perpetual future has no expiry date. Funding payments between longs and shorts pull the contract back toward the spot price. If you are on the crowded side, you pay. It can be every eight hours, all week, while the price goes nowhere. People hold these overnight because there is nothing to roll. Nothing to roll means nothing that forces you to notice the bill.
The instrument was popularised in crypto by exchanges that wanted leverage without the calendar of a traditional future. It is a useful contract for someone who can read the funding and the liquidation together. It is a leak for someone who only read the leverage. The 2022 drawdowns liquidated perpetual positions at scale. The funding on the way there was a separate, quieter leak.
Write the funding down as a fee before you call the position cheap to hold. A weekend is long enough for it to matter.
Read it yourself
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
The other side of the funding payment, and the exchange.
The funding formula.
Funding, repeatedly, and liquidation if margin runs out.
Check yourself
If the price does not move, can a perp still cost you?
Yes. Funding can flow against you the whole time.
After this you can add the funding rate to the cost of holding, before you leave a perp open.