Funding: who pays whom and when

7 min read · The funding rate of perpetual futures, its sign, payment times, traps.

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Short version for experts: tables, lists and screenshots only.

Words in this lesson (11)

Long — Buying in the hope that the price will rise. Buy lower, sell higher.

Short — Selling in the hope that the price will fall: you sell something borrowed, then buy it back cheaper. You make money when the price drops.

Spread — The difference between two prices. In the order book — between the best bid and the best ask. In arbitrage — between the price of the same asset on two venues.

Opportunity (arbitrage pair) — A pair of trades in arbitrage: where we buy and where we sell.

Funding — A regular payment between those who are long and those who are short on a perpetual futures contract. Who pays depends on whether the futures price is above or below spot.

Spot — Ordinary buying and selling of the coin or stock itself: you buy it — it's yours.

Futures — A contract on the price of an asset. You don't receive the coin itself — you gain or lose on the price change. Lets you short and use leverage.

Liquidation — The exchange force-closes a position when the loss has eaten all the collateral. The collateral is lost.

Volume — How much money or how many units changed hands over a period. A move on high volume is more reliable than one on low volume.

Fee — What you pay the exchange for every trade — both on entry and on exit.

Position — An open trade: what you have bought or sold and haven't closed yet.

What funding is

A perpetual futures contract has no expiry date, so its price needs a mechanism that keeps it from drifting far from the spot price. That mechanism is funding: a regular payment between those who are long and those who are short.

Futures above spot → the rate is positive → longs pay shorts.
Futures below spot → the rate is negative → shorts pay longs.

The payment usually happens every 8 hours (on some coins — every 4 hours or every hour). The exchange doesn't pay — the participants pay each other.

How people make money on it

A FUND opportunity: we buy the coin on spot and open a short in futures for the same amount on the same exchange. We don't care about the coin's price — the legs cancel each other out. And with a positive rate, the short receives the payment.

Example: a rate of 0.03% per 8 hours, three payments a day → 0.09% a day on the position size. Minus entry and exit fees (about 0.2% on the round trip) — so you need to hold for at least three days just to cover the fees.

Four traps

1. Different payment times on exchanges. In an F↔F opportunity one exchange pays in 5 minutes, the other in 7 hours. The rate spread looks big, but it's an optical illusion: you'll get one payment now and wait for the other, and in the meantime the rate will change. Compare not only the rates, but also the time until payment.

2. The rate changes sign. Today shorts receive, tomorrow they pay. Funding is a variable, not a bond coupon.

3. A high rate is a sign of imbalance. Very high funding means a crowd has piled into one side. Such coins move sharply, and the futures leg can get liquidated before the payment arrives.

4. Fees eat a short hold. Entering for one payment and exiting is almost always a loss.

Where this is in MAMAY

In "Crypto Arbitrage" the funding column shows the rate on the futures leg (for F↔F — the difference in rates). A plus means the futures short receives the payment.
On the "Positions" tab, the accumulated funding column shows how much has already been received or paid over the holding period.

Funding is already included in the opportunity's net result. But it's included at the current rate — check it before every payment.

↗ Open "Positions" in MAMAY

Funding: who pays whom and when

What funding is

How people make money on it

Four traps

Where this is in MAMAY

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