Funding Fee
Also known as: Funding Rate
Periodic payments exchanged between long and short traders to keep the perpetual futures contract price anchored to the spot market price.
Plain-English Meaning
Funding fees are a balancing mechanism used in crypto derivatives. If everyone is betting the price will go up (long), the funding rate turns positive, meaning long traders must pay a small fee to the short traders every few hours to keep the market balanced.
Why It Matters
For traders holding leverage positions over several days, funding fees can significantly impact profitability. Earning the funding fee can act as an extra yield, while paying it constantly drains your margin.
Simple Example
If Bitcoin is in a massive bull run and you hold a leveraged long position, you might be required to pay a 0.01% funding fee of your total position size every 8 hours.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Holding heavily leveraged perpetual positions indefinitely without checking the funding rate. High funding rates during extreme market momentum can liquidate your account through slow fee drain alone.