- A perpetual future never expires, so nothing forces it to equal spot on a given date; periodic funding payments between longs and shorts are the mechanism that pulls it back.
- On Binance the default funding interval is 8 hours (00:00, 08:00, 16:00 UTC), and the exchange takes no fee on funding: payments go directly between traders.
- Funding Amount = nominal value of the position × funding rate. With a positive rate longs pay shorts; with a negative rate shorts pay longs. Closing before the funding time means paying nothing.
- Academic work finds that perp-spot deviations in crypto are larger than in traditional currency markets and move together across coins, which is why basis trades exist and why they carry risk.
A quarterly futures contract has a built-in deadline: on expiry it settles against the spot price, so any gap between the two has to close by that date. A perpetual future has no such date. It can be held forever, which is exactly why it became the dominant crypto derivative. In the words of a recent academic study, perpetual futures are “the most popular cryptocurrency derivatives”.1
Without expiry, something else has to stop the perpetual from drifting away from the asset it tracks. That something is funding.
The idea in one paragraph
Every few hours, traders on one side of the market pay traders on the other side. If the perpetual trades above spot, longs pay shorts: holding the long becomes more expensive and holding the short is rewarded, which pushes the price down toward spot. If the perpetual trades below spot, shorts pay longs. He, Manela, Ross and von Wachter describe the mechanism precisely: “long investors periodically pay shorts a funding rate proportional to this difference.”1
Their key caveat is the one most traders miss:
“Unlike fixed-maturity futures, perpetuals are not guaranteed to converge to the spot price.”
— He, Manela, Ross, von Wachter, Fundamentals of Perpetual Futures1
Funding is an incentive, not a guarantee.
How Binance calculates it
Binance publishes the full mechanics in its official documentation.2
When it is paid. The default interval is every 8 hours, at 00:00, 08:00 and 16:00 UTC; individual contracts can use a different interval, listed in their contract specifications. A position closed before the funding time neither pays nor receives anything for that interval.
Who keeps the money. Nobody in the middle: Binance states that it “does not charge fees on Funding Payments”, which are transferred directly between traders holding opposing positions.2
The rate. It has two parts, an interest rate component and a premium component:
Funding Rate = [Average Premium Index + clamp(Interest Rate − Average Premium Index, 0.05%, −0.05%)] / (8 / N)
where N is the funding interval in hours. The interest rate is fixed by default at 0.03% per day, which is 0.01% per 8-hour interval. The clamp means that while the premium stays within 0.05% of the interest rate, the formula returns exactly the interest rate: 0.01% every 8 hours is the “neutral” level of the formula.2
The premium index measures how far the perpetual’s executable prices are from the spot index:
Premium Index = [max(0, Impact Bid − Index) − max(0, Index − Impact Ask)] / Index
The impact bid and ask are not the best quotes but the average fill price for a set notional amount on each side of the book. In other words, the premium is measured on prices you could actually trade at, not on the last trade.2
Rates are also capped, with caps that differ by contract; the documentation lists the rules.2
What it costs on a real position
The payment itself is simple:
Funding Amount = Nominal Value of Position × Funding Rate
where the nominal value is the mark price times the position size.2 A few examples for a $10,000 position:
| Funding rate per 8 h | Per interval | Per day (3 intervals) | Per 30 days |
|---|---|---|---|
| 0.01% (neutral) | $1.00 | $3.00 | $90 |
| 0.05% | $5.00 | $15.00 | $450 |
| 0.10% | $10.00 | $30.00 | $900 |
| −0.02% | −$2.00 (received by a long) | −$6.00 | −$180 |
Two practical consequences follow.
Leverage multiplies funding, not margin. Funding is charged on the nominal value, not on your collateral. A $1,000 margin position at 10x pays funding on $10,000. At a 0.05% rate that is $15 a day, or 1.5% of the margin every day.
Long holding periods change the maths. For a trade held for hours, funding is noise. For a trade held for weeks, the neutral 0.01% alone adds up to about 0.9% of the position per month, and in a crowded market much more.
Why the gap between perp and spot is a trading topic
If funding pushes the perpetual toward spot, a trader can try to earn the push: buy spot, short the same amount of perpetual, and collect funding while the price risk cancels out. This is the basis or “cash-and-carry” trade.
The academic evidence explains both why it exists and why it is not free money. He and co-authors derive no-arbitrage prices for perpetuals and find that “deviations from these prices in crypto are larger than in traditional currency markets, comove across currencies, and diminish over time”, and that an implied arbitrage strategy historically showed high Sharpe ratios.1 Large deviations are the opportunity; the fact that they move together across coins is the risk, because when one market dislocates, many do at once.
What the formula does not show:
- Funding can flip. A rate that pays shorts today can charge them tomorrow.
- The gap can widen before it closes. Since convergence is not guaranteed, the short leg can lose on price far more than it earns in funding, and on a futures account that means margin calls or liquidation.
- Two legs, two venues, two sets of fees. Spot and futures are often on different accounts; moving collateral between them takes time.
Checklist before trading the basis
- Read the contract specification: funding interval, cap and index composition.
- Look at the funding history, not the current print.
- Size margin for a gap several times wider than today’s.
- Count four fees (two entries, two exits) against the expected funding.
- Remember that funding is charged on nominal value, so leverage magnifies it.
Footnotes
-
He, S., Manela, A., Ross, O., von Wachter, V. “Fundamentals of Perpetual Futures”. arXiv:2212.06888 (first version December 2022, revised 2026). ↩ ↩2 ↩3 ↩4
-
Binance Support, “Introduction to Binance Futures Funding Rates”: funding interval and times, no exchange fee on funding, interest rate 0.03% per day, funding rate and premium index formulas, impact bid/ask, funding amount formula, no funding if the position is closed before the funding time, caps by contract. ↩ ↩2 ↩3 ↩4 ↩5 ↩6
Sources
- Introduction to Binance Futures Funding Rates. Binance Support (official documentation)
- Fundamentals of Perpetual Futures. Songrun He, Asaf Manela, Omri Ross, Victor von Wachter. arXiv:2212.06888, 2022
This article is research, not investment advice. Results on history do not guarantee future results.