Funding rates explained, and how funding arbitrage works

Funding is the payment that keeps a perpetual future close to the price of the asset it tracks. Most of the time it is small and boring, and that is the point. At our snapshot, 36 of the 40 largest Hyperliquid markets paid exactly the baseline rate. This post explains what funding is, how hourly and 8-hour funding compare, and how traders try to earn it with funding arbitrage, including the costs that usually decide whether it works.

What funding is

A perpetual future has no expiry date, so nothing forces its price back to the spot price over time. Funding does that job. When the perpetual trades above the index price, positions on the long side pay positions on the short side; when it trades below, shorts pay longs. The payment goes directly from traders to traders; it is not a fee the exchange keeps.¹

The rate has two parts on most venues:

• A premium component that measures how far the perpetual trades from the index or oracle price. The bigger the gap, the bigger the payment.
• An interest component that is fixed. On Hyperliquid it is 0.01% every 8 hours, which is 0.00125% every hour.²

When the premium is close to zero, the interest component is all that is left. That is the "baseline" rate you see on so many markets in calm conditions.

Hourly vs 8-hour funding

Venues pay funding on different schedules. Hyperliquid pays every hour: the rate is defined on an 8-hour basis, and one eighth of it is paid each hour. Its funding is capped at 0.5% per hour.² Binance pays every 8 hours by default, at 00:00, 08:00 and 16:00 UTC, with an interest component of 0.01% per interval.¹

Two rates are therefore only comparable in the same unit. We show every rate per hour and annualised:

• Per hour: the 8-hour rate divided by 8, or the hourly rate as paid.
• Annualised: the hourly rate × 24 × 365. The baseline of 0.00125% per hour equals 10.95% a year.

An annualised rate is a unit, not a promise. Funding is recalculated every hour, and a rate that looks large for a year may last for a few hours.

What our data shows

Here is how funding looked across the 40 largest Hyperliquid markets by open interest at the snapshot:

90% of these markets paid the baseline rate, and the median annualised rate was 10.95%. Only 2 markets had negative funding, where shorts pay longs. The extremes sat at the edges: XMR paid 68.89% annualised (0.00786% per hour), while AERO was at −24.86%.

The per-coin view shows the same picture for the largest markets, and where the venues disagree:

BTC, ETH and HYPE all paid 10.95% annualised on Hyperliquid, the baseline. The spread column shows the difference between the highest and the lowest annualised rate across Hyperliquid, Binance and Bybit. For GRAM it was 37.69%, with Hyperliquid at −4.21%; for PAXG it was 7.48% and for JUP 8.14%. A dash means the spread is not shown because it would reveal a single exchange's own rate.

How funding arbitrage works

Funding arbitrage tries to collect funding without taking a view on the price. It comes in two common forms.

Spot against perpetual (cash and carry). A trader holds the asset itself and a short perpetual position of the same size. The price exposure of the two legs cancels out: if the price rises, the spot holding gains what the short loses, and the other way round. While funding is positive, the short leg receives it.

Perpetual against perpetual (cross-venue). A trader holds a long perpetual on the venue with the lower rate and a short perpetual of the same size on the venue with the higher rate. Again the price exposure cancels out, and the position earns the difference between the two rates (the spread) as long as that difference lasts.

Costs and risks

The example shows the main point: the spread has to outlast the costs. The rest of the list is where funding arbitrage usually fails.

• Trading costs. Fees on four trades, plus the bid-ask spread and slippage on entry and exit. Large positions in thin markets pay more.
• Funding changes every hour. The next hour's rate is not known in advance. A spread can close or flip sign, and then the pair pays instead of earning.
• Different schedules. One venue pays every hour, another three times a day. Closing a leg just before a payment time can skip a payment the calculation counted on.
• Liquidation of one leg. Each leg has its own margin on its own venue. A sharp move can push the losing leg towards liquidation while the winning leg sits on another venue, out of reach. Lower leverage on both legs costs capital but adds distance (see how to read a liquidation heatmap).
• Price differences between venues. Mark prices differ slightly from venue to venue, so the two legs do not offset perfectly.
• Venue risk. Collateral sits on exchanges. Our hack database lists verified incidents, including exchanges.

Reading funding on our pages

The funding page shows the current and predicted rate of every coin per venue, per hour and annualised, with the spread where it can be shown. Each coin's positioning tab puts funding next to open interest and the long/short ratio, which helps to see whether high funding comes with new positions or with an old crowd. The glossary explains the funding rate and the funding spread in one sentence each.

The numbers in this post are frozen at the snapshot time shown on each block. Funding changes every hour, so check the live page for today's rates.