Funding rates

A perpetual future never expires, which creates a problem: with no settlement date, nothing forces its price to stay near the real (spot) price of the asset. Funding is the mechanism that does the forcing. It’s a periodic payment that flows directly between traders, longs and shorts, and it’s the reason a perp held for weeks can cost (or earn) real money before price moves at all.

Funding only applies to perp positions. Spot holdings, including everything Anello’s grid and DCA bots trade, never pay or receive funding.

How it works

At a regular interval (hourly on Hyperliquid), the venue measures how far the perp’s price has drifted from spot and charges one side of the market to pay the other:

• Perp trading above spot (traders are net-bullish, longs are crowded): longs pay shorts. Holding a long becomes slightly costly, holding a short slightly rewarded, and the pressure nudges the perp back down toward spot.
• Perp trading below spot (bearish positioning): shorts pay longs, with the opposite effect.

The venue takes no side of this payment. It moves trader-to-trader, proportional to position size. You pay or receive on your full notional, not on your margin, which is where leverage quietly multiplies the effect: at 10x, a funding rate that looks tiny against the position is 10× larger against your actual money.

Direction and sentiment decide which side you’re on

In a sustained bull market, longs are crowded and funding is usually positive: being long costs a steady drip, while shorts get paid to wait. In fear-driven markets it flips. This means funding is also a sentiment gauge. Persistently high positive funding says the crowd is leaning long, and that you’ll pay rent to lean with them.

The practical consequence: the popular trade usually has a carrying cost. That’s by design. Funding is the market charging whichever side is overweight.

What it costs over time: a worked example

Suppose you hold a $10,000 BTC long and funding averages a modest 0.001% per hour (≈ 8.8% annualized, unremarkable for a warm market):

• Per hour: $0.10
• Per day: $2.40
• Per month: ~$72
• Per year: ~$876

Now the same position in a hot market averaging 0.005%/hour (≈ 44% annualized): ~$360/month on a $10,000 position. If that position is backed by $1,000 of margin at 10x, funding alone is consuming 36% of your collateral per month, with price going nowhere.

That’s the trap: funding looks negligible per interval and compounds into a first-order cost over a holding period. Short-term traders barely notice it; anyone holding perps for weeks is paying (or collecting) a second P&L stream that has nothing to do with being right about price. It’s also a key reason a 1x perp long is not the same as holding spot; see Is 1x leverage safe?.

The checklist

If you hold perp positions:

• Check the current and recent funding rate before entering; it’s visible on the venue.
• Multiply: rate × notional × your expected holding period. Treat the result as a fee you’re choosing to pay.
• Remember funding drains margin. A long-held losing position is being pushed toward liquidation by funding as well as by price.

For the broader risk picture, see Risks of grid & perp trading.