When you start futures trading, you will encounter the terms "Funding Rate." This is a mechanism where payments or receipts occur periodically just by holding a position, and it becomes a cost or revenue factor that cannot be ignored for long-term holdings.

This article explains the mechanism of the funding rate, the meaning of positive and negative values, its impact on trading costs, and how to use it as an indicator to read market overheating.

What is the Funding Rate?

The funding rate is a periodic payment and receipt mechanism designed in perpetual futures to keep the futures price close to the spot price.

Regular futures have an expiration date, and the price converges to the spot price at maturity. However, since perpetual futures have no expiration date, there is a risk that the futures price and spot price will continue to diverge. To correct this divergence, a periodic adjustment cost called the "funding rate" is established.

Concrete Calculation Example

BTC position of 10,000 USDT, with a funding rate of 0.01% (every 8 hours).

Payment per instance: 10,000 USDT × 0.01% = 1 USDT

Daily payment: 1 USDT × 3 times (every 8 hours) = 3 USDT

Monthly payment: 3 USDT × 30 days = approximately 90 USDT

Even with a small number like 0.01%, costs accumulate as the position size increases and the holding period lengthens. Holding large positions for a long time when the funding rate is high is disadvantageous in terms of costs.

How to Interpret the Funding Rate

When it remains positive (Bull Market)

When the funding rate remains positive, it means that there are many long positions and the futures price continues to be higher than the spot price. It indicates a state where the majority of market participants believe prices will rise.

However, if the positive rate becomes extremely high (e.g., 0.1% or more), it is a sign of "market overheating." If long positions accumulate too much, a "long squeeze," where a large number of liquidations occur in a chain reaction, becomes more likely with even a slight decline.

When it remains negative (Bear Market)

When the funding rate is negative, there are many short positions and the futures price is lower than the spot price. This is a state where many participants believe prices will fall, and it is a signal that traders looking for contrarian long entries pay attention to.

If the negative rate is extremely large, the risk of a "short squeeze" increases. Sudden surges like those seen in ZEC or NEAR in 2026 are often triggered by short squeezes.

When it is near zero (Neutral)

The futures and spot prices are almost identical, and the balance between long and short is maintained. This is often seen in "range markets" where the trend is unclear.

How to Check on WEEX

On the WEEX futures trading screen, the "Funding Rate" and "Time remaining until next settlement (countdown)" are displayed in the trading pair details. Settlement occurs every 8 hours, and if you hold a position at the settlement time, payments or receipts occur automatically.

Settlement times (JST): 3 times a day at 08:00, 16:00, and 24:00. Whether you hold a position at these times determines whether a funding fee is incurred. Setting an alarm might make it easier to manage.

Time remaining until next settlement: Displayed as a "countdown" on the screen. By checking the current rate just before settlement, you can grasp the cost incurred in the current settlement in advance.

Information available: Current funding fee (%), time remaining until next settlement, and past funding fee history. Settlement records can be checked from "Assets" > "Transaction" > "Futures Trading" (listed as "Funding Fee").

There is also a method to avoid funding rate costs by closing a position just before the settlement time and re-entering immediately after, but it is necessary to consider the balance with trading fees.

Application to Trading Strategies

Cost Management: When holding long-term positions, it is important to calculate the cumulative cost of the funding rate in advance. The higher the leverage, the larger the position size and the higher the cost.

Grasping Market Sentiment: The funding rate can be used as a "market sentiment indicator" that reflects the supply and demand balance between long and short. An extremely positive rate suggests overheating, while an extremely negative rate suggests the possibility of a bottom.

Funding Rate Arbitrage: By holding a long position in spot while opening a short position in futures, you can hedge price fluctuation risks while receiving the positive portion of the funding rate (delta-neutral strategy). However, sufficient knowledge and margin management are required for execution.

Summary

The funding rate is a periodic payment and receipt mechanism in perpetual futures to bring the futures price closer to the spot price. When positive, it indicates many longs and a bullish sentiment; when negative, it indicates many shorts and a bearish sentiment. Extreme values are signs of market overheating or reversal.

If you are holding long-term positions, be sure to check the cumulative costs, and we recommend checking the current rate and next settlement time on the WEEX futures screen before trading.

FAQ

Q. When are funding fees deducted?

At WEEX, settlement is performed 3 times a day (every 8 hours) at 08:00, 16:00, and 24:00 JST. If you hold a position at these times, payment or receipt occurs automatically. Settlement records can be checked from "Assets" > "Transaction" > "Futures Trading." If you close your position before the settlement time, the funding fee for that instance will not be incurred.

Q. What happens if the funding rate is high?

If the funding rate is high and positive, long holders will continuously pay short holders. Since costs accumulate for long-term holdings, consider reducing your position size or shortening your holding period when a high funding rate persists. Also, if it is extremely high, it indicates market overheating, so be aware of reversal risks.

Q. Where are funding fees paid?

They are paid directly from long holders to short holders (or vice versa) without going through the exchange. WEEX does not take fees from funding fees. If the funding rate is positive, short holders receive it; if negative, long holders receive it.

Disclaimer

WEEX and its affiliates provide digital asset exchange services, including derivatives and margin trading, only to eligible users in legally permitted regions. This content is for general information purposes only and is not investment advice. Always consult with a professional before trading. Cryptocurrency trading carries high risk, and you may lose all of your invested funds. By using WEEX services, you are deemed to have agreed to all relevant risks, Terms of Service, and Risk Disclosure. Please make your own decisions and invest within your means.