Perpetual funding is a payment mechanism commonly used to encourage a perpetual contract’s price to stay near its reference market. Because a perpetual has no scheduled expiry forcing final convergence, funding changes the cost of holding long and short exposure over time.
How the incentive works
Under a common convention, positive funding means eligible longs pay shorts, while negative funding reverses the direction. A premium or discount to the reference market often contributes to the rate, sometimes alongside an interest component and limits. The precise formula varies by contract.
Paying to hold one side and receiving on the other can encourage trades that narrow the price difference. This is an incentive, not a promise that the perpetual always equals spot. Market stress, liquidity and rate limits can leave a persistent gap.
The cost of maintaining exposure
Funding is distinct from the fee for executing a trade and from repayment of a spot-margin loan. A position can incur several funding payments without changing its quantity or closing.
Posting schedules, eligibility, valuation and rate changes follow the venue’s rules. A displayed estimate may differ from the rate ultimately applied. Funding received can be outweighed by price losses, and funding paid reduces the return from an otherwise profitable position. Holding time therefore affects total results.