Contract mechanics
Funding rate
Learn why perpetual futures use funding, who pays whom, and how to calculate a simplified funding payment.
Also called: perpetual funding, funding fee
Definition
Funding rate — The funding rate is a periodic rate used by many perpetual futures markets to encourage the contract price to stay near its reference price. A payment normally moves between long and short position holders: when the rate is positive longs commonly pay shorts, while a negative rate commonly reverses that flow.
In plain English
Without an expiry date, a perpetual contract needs another force to keep it connected to the underlying market. Funding creates that force by making one side of the market periodically pay the other. The prospective payment can make an expensive side less attractive and the receiving side more attractive.
Funding is not automatically a fee paid to the venue. In the common peer-to-peer design, it transfers value between long and short position holders, although implementation and deductions vary.
How it works
A venue compares its perpetual market with a reference such as an index price. When the perpetual trades above that reference, the rate is commonly positive and longs pay shorts. When it trades below, the rate is commonly negative and shorts pay longs.
The displayed rate is incomplete without its interval. A rate charged hourly cannot be compared directly with an eight-hour rate until both are converted to the same period. Venues may also cap, smooth, or combine components when calculating the rate.
Why it matters
Funding changes the cost of holding a position. A small recurring payment can become meaningful when notional value is large or the position stays open across many funding intervals. Receiving funding can help a result, but it does not remove directional risk and should not be treated as guaranteed yield.
Worked example
Assume a long position has a $20,000 notional value when a funding rate of 0.01% is applied for one interval.
The simplified payment is $20,000 × 0.0001 = $2. Under the common positive-rate convention, the long pays $2 and the short receives $2, before any venue-specific adjustments. If the same rate applied for ten intervals, the simple total would be $20, provided notional and the rate did not change.
How it works on Lynx
Lynx funding is driven by the imbalance between long and short open interest, rather than by a perpetual-versus-spot premium formula. The side with more open interest pays; part of that payment goes to the protocol reserve and the rest goes to the less exposed side.
Lynx displays funding as an annualized rate and an eight-hour equivalent. Its borrow rate is a separate cost tied to liquidity-pool utilization.
Common misconception
Positive funding does not predict that price must fall. It describes a payment convention and market imbalance, not a standalone directional signal.
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Sources and review
Written by Lynx Editorial. Reviewed by Lynx Protocol Team on July 31, 2026. Review policy.