Funding Rates Explained: The Cost of Holding Perps

Perpetual futures never expire. Unlike a quarterly future that settles against spot on a fixed date, a perpetual contract could theoretically trade at a permanent premium or discount to the asset it tracks — nothing forces convergence. Funding rates are the mechanism that fills this gap. They are periodic, peer-to-peer payments exchanged directly between traders holding long and short positions, structured so that holding the "expensive" side of the market becomes costly enough to pull the perp's price back toward spot.

The logic is symmetric. When the perpetual trades above the spot (or index) price, funding turns positive: longs pay shorts. That payment flow adds a cost to being long and a reward to being short, which pressures traders to close longs or open shorts, nudging the perp price back down toward spot. When the perpetual trades below spot, funding goes negative: shorts pay longs, and the reverse pressure applies. See our guide on how perpetuals work for the full mechanics of how perpetual contracts substitute funding for expiry.

Why It Matters to Your PnL

Funding is easy to overlook because it isn't a one-time fee — it's a continuous carrying cost (or income) that accrues for as long as a position stays open, independent of whether the price moves in your favor. A trader can be completely right about direction and still watch funding erode the position's profitability, particularly during periods when the market is crowded on one side and funding runs persistently against them.

Because funding is charged on the position's full notional value rather than the margin posted, leverage amplifies its effect. Two positions of the same notional size accrue the same funding in dollar terms, but the position opened with more leverage has less margin behind it — so that funding cost represents a larger percentage drag on the capital actually at risk. Traders sizing up with leverage should treat funding as a real, ongoing line item alongside liquidation risk; see our breakdown of leverage and liquidation on Hyperliquid for how these costs interact with margin requirements.

How Hyperliquid Implements Funding

The following is verified against Hyperliquid's official documentation as of 2026-07-16.

On Hyperliquid, funding is exchanged every hour. It is purely peer-to-peer: payments move directly from one side of the market to the other, and the exchange collects no portion of it. This is distinct from trading fees, which Hyperliquid does keep — see our page on Hyperliquid's fee structure for that separate cost.

The hourly rate has two components. The first is a premium component, which measures the gap between the perpetual's price and its underlying oracle price. The second is a predetermined interest-rate component, set at 0.01% per 8 hours — equivalent to 0.00125% per hour.

Hyperliquid combines these using the standard funding formula:

Funding Rate = Average Premium Index + clamp(Interest Rate − Premium Index, −0.0005, +0.0005)

The premium itself is measured using impact prices relative to the oracle price rather than the raw order book mid, which limits how easily a single large order can distort the rate. The impact notional used for this calculation is 20,000 USDC for BTC and ETH, and 6,000 USDC for other assets.

Reading Funding as Information

Beyond its role as a cost, funding is also a signal. Because it reflects the balance of pressure between longs and shorts, a persistently positive funding rate indicates the market is crowded with longs who are willing to keep paying to hold their positions — and a persistently negative rate indicates the same on the short side. Traders often watch funding trends as a gauge of positioning and sentiment. This is descriptive, not prescriptive: funding tells you how the market is leaning, not which way the price will move next, and it should not be read as a trading signal in itself.

Frequently Asked Questions

Who receives funding payments?

On Hyperliquid, funding is paid directly to the other side of the market — long traders and short traders exchange it between themselves. The exchange does not collect any part of a funding payment. Some other venues route funding differently, so this specifically describes Hyperliquid's implementation.

How often is funding charged on Hyperliquid?

Hyperliquid settles funding hourly, based on the rate calculated from the average premium index and the fixed interest-rate component described above.

Can funding be negative?

Yes. When the perpetual trades below the underlying oracle price, the funding rate can go negative, and payments flow the other way: shorts pay longs instead of longs paying shorts.