Compare Crypto Funding Rates In December 2023
What Are Crypto Funding Rates?
Let’s start with some context. A futures contract is an agreement to buy or sell at a certain price on a certain date in the future (the expiry date), but crypto trading often uses perpetual contracts instead. Perpetuals act like futures contracts, but they don’t expire. Ever. They keep going and going and going. And they can do this through something called crypto funding rates.
Basically, one side of the trade pays the other side of the trade to keep this thing going, umm, perpetually.
We’ll learn how to calculate crypto funding rates and explore some ways to use them to make money. Sound good? Let’s dig in and figure this funding rate stuff out together. Don’t worry — it’s not as confusing as it might sound.
Crypto Funding Rates & Perpetuals, Explained
In a traditional crypto futures contract, two traders agree to buy and sell a crypto asset on or before a future date. Simple enough.
It’s like when you make a deal with your bowling buddy to sell him your spare bowling ball for $50 next Thursday when he gets paid. Both parties know the date and the price. If there’s a nationwide bowling ball shortage and the value of bowling balls shoots up to $200, it doesn’t matter. A deal is a deal.
That agreed price is called the spot price. It gets its name from “on the spot,” meaning the amount you’d pay to buy it right now. When you buy Bitcoin or another crypto on an exchange, you’re paying the spot price, not the next-Thursday price.
There are three parts to this futures deal:
- Item and quantity: One bowling ball (the asset or commodity)
- Price: $50 for one bowling ball (the spot price)
- Date: Next Thursday (the expiry date)
This is a physical settlement because you’ll deliver one real-world bowling ball next Thursday in exchange for $50 cash.
Now, let’s look at a crypto example with Perpetual Swaps.
Let’s say you buy a BTC futures contract today at $20,000. On the contract expiration date, the BTC spot rate has risen to $22,000, meaning that’s what you could sell it for right now. You paid $20,000 (you genius) per your contract. That’s $2,000 in earnings the easy way.
Of course, it could have gone the other way, too. Bitcoin could have fallen to, say, $16,000 by the expiration date. Now, you’re down $4,000. Yeah, you can lose money with futures too.
Buuuut — what if you never had to take delivery of the Bitcoin? Maybe you weren’t wrong about the price direction, just a bit early. Well, that’s where crypto perpetual contracts come in, also called perpetual trading, perpetual swaps, or just perpetuals. The cool kids call them perps. All the same thing. You can still bet on the future price, but you don’t ever have to take delivery, and the contract never expires.
Perpetual trading is popular because it’s waaaay easier than traditional futures trading, and you can bet on the price of all sorts of weird cryptos — or even real-world fiat currencies — without the risk of actually owning any of them.
Perpetual futures trades are just a bet on price, whether up or down.
- A long position is a bet on the price going up
- A short position is a bet the price will go down.
You can keep a perpetual contract open as long as you want — or as long as you can afford it. Remember those funding rates? Yep. There’s a cost to holding a position that’s on the opposite side of the market sentiment. We’ll get into how that works next.
What are Crypto Funding Rates, and How Do They Work?
A crypto funding rate is a small percentage of your position’s value that you pay to (or receive from) traders on the other side of the trade. Generally, shorts pay longs if the trend is up, and longs pay shorts if the trend is down. Most exchanges use funding rate payment intervals of 1, 4, or 8 hours.
Here’s why they’re needed.
In a traditional futures contract, there’s a market of buyers and sellers for futures contracts who nudge the contract price toward the spot market price by going long or short. It’s arbitrage trading at its finest, and it happens all day long in traditional finance markets.
Since crypto perpetual contracts don’t have an expiry date, their prices are often different from spot prices. And there’s no market of buyers and sellers for these contracts because there’s no end date and, therefore, no arbitrage opportunity for the contract value itself.
So here’s the dilemma: If the market sentiment is bullish, the perpetual’s price for a cryptocurrency is normally higher than the spot price (and vice versa). How does that even work for trades? It doesn’t. It’s an untradeable mess.
But that’s where crypto funding rates come into play. Funding rates keep the crypto perpetuals’ prices closer to spot prices. Now, you’ve got something you can trade.
Positive And Negative Funding Rates
Funding rates can be positive or negative.
- The funding rate is positive when the perpetual is trading above the spot price. Long traders pay a fee to short traders.
- The funding rate is negative when the perpetual is trading below the spot price. In this case, shorts pay a fee to longs.
Basically, the funding rate creates a fee for one side of the trade and a rebate for the other. It works as an incentive to keep the perpetual contract closer to the spot price.
Interest Rates And Premiums
There are also two parts to the funding rate:
- The interest rate is fixed and set by the exchange ( but it might vary for each crypto).
- The premium (or discount) changes based on how far the perp price is from the spot price.
You’ll see exchanges use different terms for these rates sometimes, but the takeaway is that one part moves to fill a price gap, and the other doesn’t change. Some formulas use a clamp, which is designed to set a maximum interest rate.
Apply some math, and Voila! Now, you have a funding fee, which is the amount you’ll pay or receive.
Calculating Funding Rates
A basic funding fee looks something like this: Position size X the funding rate.
So if you start a $20,000 Bitcoin long and the funding rate is positive at 0.015%, you’ll pay $30 to keep that position open for 8 hours. If the funding rate is negative, the shorts pay the longs instead. Somebody is always getting their palm greased by the other side.
Go into a perpetual contract knowing this: You’ll either pay a funding fee or receive one, and it might change over the course of your trade. If the perpetual is close to the spot price, the funding rate is lower because not as much incentive is needed to bring that wayward perp price back in line.
What this magical funding rate invention lets you do is trade at near-spot prices and easily go long or short on a wide range of cryptos. Spot markets only let you go long (congrats, you own whatever you bought).
With perpetuals, you can also use leverage to amplify your gains. Well, unless you lose money. Leverage also amplifies losses.
We’ll get into how to calculate funding rates in just a bit. But here’s some good news: You don’t have to calculate them at all. Just relax and let the computers do that for us. You’ll see the funding rate right on your trading screen. Easy.
Where to Trade Crypto Perpetual Contracts
Okay, now that we understand the basics, which exchange should you use for perpetuals?
Well, first, you should know that some governments don’t allow crypto derivatives trading. A perpetual isn’t the real asset; it’s a representation of it — a derivative. If you’re a retail investor in the US or the UK, you won’t be able to trade perps legally on a centralized exchange. Other parts of the world are more liberal about perpetual trading.
| Exchange | Accepts US Customers? | Trading Pairs Offered | How Often Funding Rates Are Set | How Often Funding Rates Are Paid Out | Leverage Range For Perp Futures |
|---|---|---|---|---|---|
| Bybit | No | BTC-USDT, ETH-USDT, BTC-USDC, 100+ more | 8-hour intervals | 8-hour intervals | Up to 100x |
| dYdX | No | BTC-USD, ETH-USD, 30+ more | 8-hour intervals | 1-hour intervals | Up to 20x |
| BitMEX | No | XBT-USD, XBT-USDT, ETH-USDT, XRP-USDT, 50+ more | 8-hour intervals | 8-hour intervals | Up to 100x |
| OKX | No | BTC-USDT, ETH-USDT, DOT-USDT, 100+ more | 8-hour intervals | 8-hour intervals | Up to 125x |
| Gate | No | BTC-USDT, ETH-USDT, BTC-USD, 100+ more | 8-hour intervals | 8-hour intervals | Up to 30x |
| BitGet | No | BTC-USDT, ETH-USDT, BTC-USD, 100+ more | 8-hour intervals | 8-hour intervals | Up to 125x |
| CoinEx | No | BCH-USDT, BTC-USDT, ETH-USDT, BTC-USD, 50+ more | 8-hour intervals | 8-hour intervals | Up to 100x |
| Deribit | No | BTC-USDC, ETH-USDC, ETH-PERP, 15+ more | 8-hour intervals | 8-hour intervals | Up to 50x |
| Huobi | No | BTC-USDT, ETH-USDT, ETH-USD, LTC-USD, 100+ more | 8-hour intervals | 8-hour intervals | Up to 50x |
| Kraken | No | XBT-USD, ETH-USD, ADA-USD, 50+ more | 1-hour intervals | 1-hour intervals | Up to 50x |
| Phemex | No | BTC-USDT, ETH-USDT, DOT-USDT, 100+ more | Every 8 hours | Every 8 hours | Up to 100x |
Trading pairs for perpetuals work just like trading pairs for spot buys. It’s the price of crypto A compared to crypto B. Most pairs include a crypto stablecoin that tracks the value of USD. So, you’re betting on the price going up or down compared to USD.
For example, in a BTC-USDT pair, you’ll deposit USDT stablecoin to open a long or short BTC perpetual contract. Part or all of your deposit will be used as margin for your position, depending on how much leverage you use. Margin basically works as collateral. It’s crypto you put up to back the trade. If you lose money on a trade, you’ll lose some or all of your collateral. Umm, try not to lose money, okay?
Why Funding Rates Matter
Crypto funding rates matter because they can affect your profitability for the trade. We already know that margin is backing the trade. But at the same time, funding fees could be working against you.
As those fees pile up, they inch you closer to liquidation, which is when the exchange closes your position because a losing trade used all your margin. It can happen — and with funding fees chewing away at your margin like termites, it can happen faster than you can say, “Hey, where’d my money go?” Especially if you’re using high leverage.
Remember, the funding fee is based on the size of the position, which could be whale-worthy amounts if you’re using Shamu-sized leverage to trade. With leverage, less might not be more — but it’s definitely safer.
Funding Rates For Top Exchanges
Let’s look at some of the top exchanges for perpetuals and how they calculate their funding rates. We’ll also take a look at trading fees. Funding fees go to other traders. Trading fees go to the exchange.
The funding rate is calculated for you and displayed on your trading dashboard. You won’t need a funding rate calculator or the fancy calculator wristwatch you got in eighth grade — unless you really want to use it. But for the inquiring minds out there, here’s the math going on behind the scenes on the top perpetual exchanges.
1. Bybit
Trading fees: 0% to 0.06% depending on trading volume.
Funding fees from the ByBit funding rate are recalculated and paid out every 8 hours for each crypto pair.
- ByBit Funding Fee = Position Value x Funding Rate
- Position Value = Quantity of Contract / Mark Price
- ByBit Funding Rate (F) = Premium Index (P) + Clamp (Interest Rate (I) – Premium Index (P), 0.05%, -0.05%)
2. dYdX
Trading fees: 0% up to $100,000 in trading monthly volume, 0% to 0.05% above $100,000.
The dYdX funding rate is calculated on an 8-hour basis but is paid out hourly in USDC tokens. It’s calculated as follows:
- Funding Fee = Size of the Position (S) X Index price for the market supplied by Oracle (P) x Funding Rate ®
- Funding Rate = (Premium Component / 8) + Interest Rate Component
3. BitMEX
Trading Fees: 0.01 to 0.075, depending on trading volume.
Like most exchanges, the funding rate is calculated and paid out every 8 hours on BitMEX. The funding fee and funding rate are calculated as follows:
- Funding Amount = Mark Value x Funding Rate
- Funding Rate (F) = Premium Index (P) + Clamp (Interest Rate (I) – Premium Index (P), 0.05%, -0.05%)
4. OKX
Trading fees: 0.01% to 0.05%, depending on your total OKB token holdings, 30-day trading volume, total assets balance, and OKX user level.
The funding fee is charged and paid every 8 hours, calculated as shown below:
- Funding Fee = Position Value x Current Funding Rate
- Funding Rate = Clamp (MA (((Best Bid + Best Offer)/2 – Spot Index Price)/Spot Index Price-Interest), a, b)
The “a” and “b” values are as follows:
| Currency | a | b |
|---|---|---|
| BTC | -0.375% | 0.375% |
| ADA, AVAX, BCH, BSV, DOT, EOS, ETC, ETH, FIL, LINK, LTC, SOL, TRX, XRP | -0.75% | 0.75% |
| Other Currencies | -1.50% | 1.50% |
| DOGE | -3% | 3% |
As you can see, the Bitcoin funding rate may differ from other crypto pairs depending on which exchange you choose.
5. Gate
Trading fees: -0.025% or 0.075%. Gate gives limit orders a rebate (-0.025%), and market orders pay 0.075%.
The funding rate is calculated every minute and averaged out every 8 hours for charging and payment purposes.
- Funding rate = Premium index + Clamp (0.01% – Premium index, 0.05%, -0.05%)
- Funding Fee = Position Value x Funding Rate
6. BitGet
Trading fees: 0.02% to 0.06%
BitGet calculates the funding rate on an 8-hour basis.
- Funding Fee = Funding Rate x Position Value
- Funding rate (F) = Premium index (P) + Clamp (Interest Rate (I)-Premium Index (P), 0.05%, -0.05%)
7. CoinEx
Trading fees: 0.02% to 0.05%, depending on your user level and current CET (the CoinEx native token) holdings.
The funding rate is calculated every minute and is averaged and paid out every 8 hours.
- Funding Fee = Position Value x Funding Rate
- Funding Rate = Clamp (MA (((Impact Bid Price + Impact Mark Price) / 2-Spot Price) / Spot Price – Interest), a, b)
8. Deribit
Trading fees: 0% for limit orders or 0.05% for market orders
Like most of its peers, the funding rate is calculated and paid out every 8 hours. The Deribit funding rate calculation is as follows:
- Funding Payment = Funding Rate x Position Size x Time Fraction
- Funding Rate = Maximum (0.05%, Premium Rate) + Minimum (-0.05%, Premium Rate)
- Time Fraction = Funding Rate Time Period / 8 hours
- Premium Rate = ((Mark Price – Deribit Index) / Deribit Index) x 100%
9. Huobi
Trading fees: -0.015% to 0.05%, depending on your 30-day trading volume.
The funding rate for Huobi is paid out every 8 hours and is computed using the following formula:
- Funding = Net Position x Contract Face Value x Settlement Price x Funding Rate
- Estimated Funding Rate of Next Period = Clamp (average premium index + clamp (comprehensive interest rate – average premium index, premium deviating from upper limit, premium deviating from lower limit), upper limit of funding rate, lower limit of funding rate)
10. Kraken
Trading fees: 0% to 0.05%, depending on 30-day trading volume.
Kraken computes funding rates hourly. The formula is more complex because it’s designed to change gradually. Kraken offers a detailed explanation in their docs.
Kraken’s funding rate is computed as a time-weighted average premium, standardized to a per-hour basis, with a permissible range of -0.25% to +0.25%. Once the average premium is calculated, it is weighted by a Funding Rate Multiplier, a coefficient set to the value of 24 (the number of hours in a day).
Traditional Futures Vs. Perpetual Futures
The idea behind perpetual futures dates back to 1992, but the first exchange to take the perp ball and run with it was BitMEX crypto exchange. Here’s how perpetuals compare to traditional futures.
| Traditional Futures Contracts | Perpetual Futures Contracts | |
|---|---|---|
| Expiry Date | Yes | No |
| Settlement | Automatic settlement upon expiry | No settlement until closed manually or closed via a scheduled settlement date that was previously set up |
| Funding Fee | No | Yes, funding rate formulas vary by exchange |
| Convergence With Spot Price | Price convergence with spot rate at settlement | No automatic price convergence; deviations vs. spot price managed through funding rates |
Why Do Crypto Exchanges Need Funding Rates?
Funding rates — or, more specifically, the fees they generate — create a market incentive to keep prices on perpetuals close to the spot price. Fees imposed on short or long sellers encourage traders to close positions or open positions on the other side of the trade. Traders opening new positions face a choice: pay a funding fee or get paid by other traders.
Again, the same incentives are at work to push the contract price closer to the spot price.
Without funding fees, the price of the perpetual contract would disconnect from the spot price, causing an upside spread when the market is bullish and a spread to the downside when bearish. Funding fees restore order to the trading universe.
What Determines The Funding Rate?
Exchanges use various formulas, but most use two primary components in the calculation:
- Interest rate: This is the base rate set by the exchange. It doesn’t change, but it may differ depending on the crypto asset you’re trading. For example, Bitcoin might have a different interest rate than Dogecoin. That means the BTC funding rate may differ from the DOGE funding rate because the interest rate is key to the calculation.
- Premium: The premium is variable and changes based on how far away the contract price is from the spot price. Think of it as a balance. When one side gets too heavy, it pushes up the other side with incentives (or penalties on the other side of the trade).
What Does A Funding Rate Mean For Traders?
Funding rates can generate fees (or rebates) when trading perpetuals, so it’s important to account for them in your trades. And there are ways to use funding fees to your advantage.
Remember what each side of a funding rate means.
- A positive funding rate means that a crypto perp’s price is higher than the spot price, and going short will earn you a funding fee.
- A negative funding rate tells us that the crypto perp’s price is lower than the spot price, and you’ll earn funding fees by going long.
Funding Rates In Action
Let’s say a BTC perp is trading at $22,000 on Exchange A against $20,000 in the spot market. The funding rate is 0.008%. That’s a positive rate. So, going short will earn a funding fee, right? Righto! The longs pay the fee to shorts.
Assume all these figures stay unchanged over the next 24 hours, with funding fees paid hourly. Here’s what you could do to (hypothetically) make money from the divergence:
- You can open a short position in the ETH perp market, with a $2,200 margin (initial deposit to open the trade), and earn:
- Without leverage: ($2,200 x 0.008%) x 24 = $4.224 per day.
- With 5x leverage: $21.12 per day.
- With 10x leverage: $42.24 per day.
Remember, you’re not paying the funding rate. Those greedy longs are paying you.
How Are Crypto Funding Rates Related To Market Sentiment?
When things are going great, we’re optimistic. When they’re not so great, we’re waiting for the next shoe to drop. That’s common in human nature, and trading is just human nature expressed with money. Most perp traders are going long on cryptos during bull markets and shorting in bear markets. Either way, it puts too many traders on one side of the trade, and that imbalance shows in the funding rates.
Crypto funding rates often reflect the prevailing market conditions.
- Higher positive funding rates are indicative of bullish market sentiment.
- Higher negative funding rates point towards a bearish trend.
Higher rates — in either direction — mean market sentiment was driving the perp’s price, and it disconnected from the spot price.
How Do People Make Money Off Crypto Funding Rates?
There are a few ways to put this funding rate thing to work for you. However, none of this is financial advice, okay? After all, you might lose all your money. You probably will, in fact.
Below are some hypothetical examples. Put your hypothetical hard hat on; to maximize the trades, you’ll need to use leverage.
Funding Rate Arbitrage
With arbitrage, you’re trading a rate or price variance between marketplaces. Rate arbitrage can take many forms, like taking an introductory rate credit offer at 1% and putting it in a money market to earn a 5% yield. This time, we’ll become funding rate arbitrageurs, trading two exchanges at once. Hypothetically, of course.
Let’s say, SOL funding rates are 0.06% and -0.03% on Exchange A and B, respectively, paid every 8 hours.
This means every 8 hours:
- Longs will pay a funding fee to shorts on Exchange A.
- Shorts will pay a funding fee to longs on Exchange B.
Assume you have $20,000 to invest, and the funding rate stays the same for 24 hours.
On Exchange A
As the funding rate is positive, you open a short position with $10,000 margin. Your daily earnings:
- Without leverage = ($10,000 x 0.06%) x 3 = $18
- With 5x leverage = $90
- With 10x leverage = $180
The longs are paying the shorts. That’s you. Congrats!
On Exchange B
Since the funding rate is negative, you open a long position with $10,000 margin. Your daily earnings:
- Without leverage = ($10,000 x 0.03%) x 3 = $9
- With 5x leverage = $45
- With 10x leverage = $90
Shorts are paying longs on Exchange B. Congrats again, you double-dipper.
Total daily earnings
- Without leverage = $18 + $9 = $27
- With 5x leverage = $135
- With 10x leverage = $270
This paired trade is a market-neutral (also called delta-neutral). Each position hedges against the other so that market moves are neutralized. Is it free money? Not completely. You may need to pay exchange trading and leverage fees. Be sure to put that in your calculations.
For a quick comparison of funding rates at the leading exchanges, you can check Coinglass funding rates. Coinglass provides a sortable list of funding rates for perpetual swaps at ByBit, OKX, and others making it easier to spot potential arbitrage plays.
Cash And Carry
This strategy is also delta-neutral. But instead of using two perps to make the trade neutral, we’re using a spot purchase to hedge a perp trade where there’s a price variance compared to the spot price.
- You buy crypto in the spot market.
- You short the same amount in the perpetuals market (using leverage).
Let’s say you’d like to invest $22,200. Assume BTC is trading at $20,000 in spot and $22,000 in the perpetuals market. You buy 1 BTC for $20,000 in spot and short 1 BTC with $2,200 margin and 10x leverage in perpetuals. Assuming the funding rate is paid every 8 hours and stays 0.06% for 24 hours, you stand to earn (excluding exchange and leverage fees):
- ($2,200 x 0.06%) x 3 = $3.96
- With 10x leverage = $39.60 per day
On top of the $39.60 funding fee daily (using leverage), you’ll also make a profit when the BTC spot and perp prices converge. Do you have to buy a whole Bitcoin to make this work? Nope. Just match the amounts on each end. Cut in half or even a third. The math still works, but check to see how trading fees might differ when the trade amounts change.
To Sum It Up
The crypto funding rate helps balance the perpetual rate to the spot price of a specific crypto. By Learning crypto funding rates, you’ll understand the elements that can affect the rate – but you won’t need to calculate rates for every trade. The exchange takes care of that. And you can use that calculated number to decide where to trade, which direction to trade, or even to make money from arbitrage opportunities.
Frequently Asked Questions
Each exchange uses different methods to calculate funding rates. But most formulas use two important factors — premium component and interest rate. The interest rate component is fixed (set by the exchange), while the premium component is variable and helps create an incentive to bring the perpetual price close to the spot price.
A negative funding rate means that the crypto’s perpetual contract is trading at a price lower than its spot rate. In this case, shorts pay a funding fee to the longs in the market.
A crypto funding rate is a price-anchoring tool that helps keep a crypto perpetual futures contract’s price close to the price the crypto trades at on exchanges. By using funding rates, crypto exchanges can offer perpetual trading in which the asset price closely follows the price spot price without traders having to take delivery of the crypto they’re trading.
A high funding rate means the trading price in a perpetual trading contract is above the price the crypto is trading at on exchanges. For example, if the price of Bitcoin is $16,000 on the exchange but the contract is trading at $16,100, the contract’s funding rate will be positive, causing some long traders to close their position or switch sides on the trade. When the funding rate is positive, longs pay a funding fee to shorts.
Binance uses the following formula for calculating the funding rate:
Funding Rate (F) = Average Premium Index (P) + clamp (Interest Rate – Premium Index (P), 0.05%, -0.05%)
The funding rate usually varies from one trading pair to the next because the interest rate in the formula above can vary for different cryptos. Bitcoin might have a different base rate compared to Dogecoin, for example.
Each exchange can have different funding rates for perpetual swaps. Generally, they are calculated based on the premium and interest components of each trading pair. Each exchange sets the interest rate for that specific exchange (and specific crypto). The premium component changes based on each perpetual exchange price compared to the spot price. Between these two components, you’ll often see different funding rates for each exchange and even different funding rates on a single exchange throughout the day.
A positive funding rate means that the crypto perp is trading at a price higher than that crypto’s spot rate. In this case, longs will pay a funding fee to the shorts in the market.
