Funding is the cheapest way to see which side of the market is crowded. It shows how much traders are willing to pay to keep a leveraged position open.

Why perpetual futures need funding

A perpetual future never expires, so nothing forces its price to converge with spot. Funding does that job: every few hours one side pays the other. If the future trades above spot, longs pay shorts and holding a long gets more expensive. If it trades below, shorts pay. That pulls the contract price back toward the real price of the coin.

The exchange does not keep this money. It moves from traders to traders, and only positions that are open at the settlement time pay or receive it.

How often and how much

On Binance, Bybit and OKX the standard interval is eight hours, settled at 00:00, 08:00 and 16:00 UTC. Some contracts settle every four hours or every hour, which is why rates from different venues are best compared on an annualised basis.

The default rate on most exchanges is 0.01% per eight hours, roughly 11% a year. That is considered neutral: the market leans slightly long, as it almost always does. The payment is charged on position size, not on margin, so at 10x leverage the same 0.01% costs 0.1% of your capital every period.

What high funding means

A rate well above the default, say 0.05% or more per eight hours, means leveraged longs are crowded and paying up to stay in. It is not a sell signal on its own: in a strong trend high funding can last for weeks. But the market becomes fragile. Any drop triggers long liquidations, those positions are sold at market, and the decline accelerates. That is a long squeeze.

What negative funding means

Shorts pay longs because more traders are betting on a fall. Persistently negative funding while price is rising is the classic setup for a short squeeze: holding shorts is costly, and the rally keeps hitting their stops, which forces them to buy.

How to use funding

Look at the whole market rather than one venue. The funding rates page shows eight exchanges and an open-interest weighted average, which is what the market as a whole is paying. One venue far away from the rest usually says more about its users than about the market.

Funding works best with two other numbers. Rising open interest with high funding means fresh leveraged money is going long. The liquidation heatmap shows where those longs would be force-closed.

Limits

Funding only describes perpetual futures. Spot buying, ETFs and large funds do not show up in it. Funding can stay neutral during a strong rally if the buying comes from spot, and that is actually a sign of a healthier move.