Perpetual futures and funding rates explained

A perpetual future, or "perp", is a crypto derivative that gives leveraged exposure to an asset such as bitcoin but, unlike a normal futures contract, never expires. To stop its price drifting away from the spot market, holders on one side pay holders on the other side a funding payment at regular intervals: when the perp trades above spot, longs usually pay shorts, and when it trades below, shorts usually pay longs. Funding is the cost, or income, of holding the position, and it can change every few hours.

Perpetuals are the most heavily traded crypto derivatives in the world, but most of that trading happens on venues that are not authorised to offer them to retail clients in the EU or UK. This guide explains the mechanics first, then the costs with worked numbers, and then the regulatory position, which changed in 2026.

Where perpetual futures came from

A conventional futures contract has an expiry date. On that date it settles against the spot price, so as expiry approaches, the futures price and the spot price converge. If you want to keep exposure, you close the expiring contract and open the next one, which is called rolling. The commodity futures guide explains expiry, rolling and the price gap between contracts.

Crypto derivatives exchanges wanted a product that behaved like a leveraged spot position: no expiry, no rolling, a price that tracks spot. BitMEX launched its bitcoin perpetual swap in May 2016, and within weeks moved to a funding mechanism that included the premium of the perpetual over spot, settled every eight hours. That basic design has since been copied across the industry. Regulated dated bitcoin futures also exist, for example on CME since December 2017, but perpetuals dominate trading on crypto-native venues.

How funding keeps the price close to spot

Without expiry, nothing forces a perpetual to converge to spot. If more traders want to be long than short, buyers could push the perp's price well above the index. Funding fixes this by making the crowded side pay.

• Perp above spot (a premium): funding is positive, longs pay shorts. Holding a long becomes more expensive and holding a short earns income, which encourages arbitrageurs to sell the perp and buy spot, pulling the prices together.
• Perp below spot (a discount): funding is negative, shorts pay longs. The incentive runs the other way.

The payment passes between traders. On most venues the exchange is not the counterparty to funding and does not keep it, though it earns trading fees on every trade. Funding is paid only by those holding a position at the funding time; a trader who opens and closes between two funding times pays none.

How the rate is calculated

Each venue publishes its own formula. Many large exchanges use a version of the same structure:

• A premium component: a measure of how far the perpetual's price has traded above or below the spot index over the funding period.
• An interest component: a small fixed rate reflecting the difference in borrowing costs between the two currencies in the pair. On several large venues this is set at 0.01% per eight-hour interval, which is why 0.01% is often seen as the "neutral" funding rate when markets are calm.
• Caps and clamps: limits on how high or low the rate can go per interval, which differ between venues and contracts.

The payment itself is position value times the funding rate. Position value is normally calculated from the mark price at the funding time, not your entry price.

Funding intervals

Eight hours is common, giving three payments a day. Some venues settle every hour or every four hours, and some shorten the interval when the rate hits its cap. Always check the contract specification, because an hourly rate of 0.01% is eight times as expensive as the same figure every eight hours.

Worked examples: what funding costs

The numbers are illustrative.

You hold a long perpetual position with a value of $20,000 and funding settles every eight hours.

1. Calm market, funding 0.01% per interval. Each payment is $20,000 × 0.01% = $2. Three a day is $6. Over 30 days, about $180. Over a year at the same rate, about $2,190, roughly 11% of the position value.
2. Heated market, funding 0.05% per interval. Each payment is $10, so $30 a day and about $900 over 30 days. Annualised, around 55% of the position value.
3. Very crowded long, funding 0.1% per interval. Each payment is $20, so $60 a day and about $1,800 over 30 days.

Now compare those costs with the margin. If the $20,000 position was opened at 10x, the margin is $2,000. In example 3, a month of funding equals 90% of the margin. Funding is deducted from the margin in isolated mode, so the liquidation price creeps closer with every payment even if the price does not move. The leverage and liquidation guide shows how to calculate that price.

If funding turns negative, a long receives payments instead. Some traders build positions specifically to collect funding (long spot, short perp, for example), which is the crypto version of a cash-and-carry trade. It still carries real risks: the exchange can fail, the hedge can be liquidated on one leg during a spike, and the rate can flip.

Worked example: why a "hedged" funding position is not riskless

The figures are illustrative.

A trader buys 1 BTC on a spot exchange at $50,000 and sells a perpetual for 1 BTC at the same price, using $10,000 of margin on the perp (5x). Price moves cancel out across the two legs, and the trader collects funding while it stays positive. At 0.01% per eight hours on $50,000, that is $5 per interval, or $15 a day.

Now suppose bitcoin rises 20% in two days to $60,000. The spot coin is worth $10,000 more, but that gain sits on a different platform. The short perp has lost $10,000, which is its entire margin, and it is liquidated before that point. The trader is left holding an unhedged spot position, has paid a liquidation fee, and the funding earned over the previous weeks may not cover it. Add exchange counterparty risk on both legs, and the "neutral" trade turns out to have several ways to lose money. The planned guide to crypto exchange collapses shows why counterparty risk is not theoretical.

Funding when the market turns

Funding also changes abruptly when sentiment flips. During a sharp sell-off, positive funding can fall to zero or turn negative within one or two intervals as leveraged longs are liquidated and shorts pile in. A trader who opened a long expecting to pay a small, steady amount can find the rate has moved against them, or in their favour, before the next payment. This is why a funding rate quoted on a screen is a snapshot, and estimates of the cost of holding a perp for a month should be treated as a range, not a fixed number.

Funding versus overnight financing on a CFD

A crypto CFD with a broker charges overnight financing instead of funding. The broker sets the rate, typically as an annual percentage applied daily to the position value, and often charges both longs and shorts. Funding, by contrast, is set by market positioning, changes every interval and can be paid to you. The crypto CFD overnight fees guide explains the CFD charge in detail, and the swap calculator shows how overnight charges build up over a holding period on forex and metals.

Mark price, index price and last price

A perpetual exchange usually shows three prices, and it matters which is which.

• Last price: the most recent trade on that exchange's order book.
• Index price: a weighted average of spot prices from several other exchanges.
• Mark price: a fair-value estimate derived from the index plus a smoothed basis. It is used to calculate unrealised gains and losses and to trigger liquidations.

Using the mark price for liquidations means a single large order on a thin book should not liquidate everyone. It also means your position can be liquidated while the last price on your screen looks safe, or survive a spike that appears on the chart. If you review a liquidation, check the mark price history, not just the candles.

Reading funding rates as positioning data

Funding is published openly, and many traders watch it as a measure of crowding. Persistently high positive funding means longs are paying heavily to keep their exposure, which says leveraged long demand is strong. Deeply negative funding says the opposite.

What funding does not do is tell you where the price goes next. Crowded positioning can persist for weeks while the price keeps moving in the crowd's favour, or unwind abruptly in a liquidation cascade. Treat it as one description of the market's current state, alongside open interest (the total size of open contracts) and the basis between perps and dated futures. None of these is a signal on its own, and the planned guide to crypto market cycles explains why past patterns prove little.

Perpetuals and the rules in the EU and UK

This is where perpetuals differ most from their marketing. Most of the global volume trades on exchanges based outside the EU and UK that offer high leverage, often 50x or 100x and sometimes more. Those platforms are generally not authorised to offer derivatives to EU retail clients.

What changed in 2026

On 24 February 2026, ESMA published a public statement on identifying derivatives within the scope of the national product intervention measures on CFDs, prompted by the growth of products marketed as perpetual futures. Its main points:

• The commercial name of a product is irrelevant. Firms must assess each derivative's actual features to decide whether it is a CFD under the national measures.
• Where a perpetual meets the CFD definition, the CFD measures apply: leverage limits (2:1 for crypto underlyings for retail clients), a standardised risk warning, the 50% margin close-out per account, negative balance protection and a ban on monetary and non-monetary inducements.
• Perpetual futures are packaged retail investment products, so a PRIIPs key information document is required, along with MiFID II target-market and appropriateness obligations.

In practice, an EU retail client who can trade a perpetual through an authorised firm should expect CFD-style protections and limits, not the 50x or 100x seen on offshore venues. A small number of MiFID II-authorised venues have started offering perpetuals in some EU countries; availability depends on the firm and your country of residence. The ESMA leverage limits guide explains the underlying CFD rules, and the planned guide to MiCA explains why the EU's crypto-asset regulation does not itself cover derivatives, which fall under MiFID II.

The UK

The FCA has prohibited the sale, marketing and distribution of crypto derivatives, including futures, options and CFDs, to retail consumers since January 2021. Rules change, so check the FCA's current position if you live in the UK.

Why using an offshore venue is a real risk

Accessing an unauthorised exchange from the EU or UK, for example by misstating your residence, typically breaches the platform's own terms and removes the protections of local regulation: no leverage cap, no negative balance protection in law, no ombudsman, and no investor compensation scheme. If the venue freezes withdrawals or fails, recovering money can be slow or impossible. Look up any firm on the regulator registers before sending money.

Perpetual, dated future, CFD or spot: a comparison in words

• Spot crypto means you own the coin (or the platform holds it for you). No leverage, no funding, no expiry; the main risks are price and custody. The crypto CFDs vs buying crypto guide compares spot with CFDs.
• A dated future expires and converges to spot at expiry. The cost of holding is built into the price as a premium or discount to spot, and you roll it if you want ongoing exposure.
• A perpetual has no expiry. The cost of holding is paid in funding at each interval and changes with positioning.
• A crypto CFD from a broker has no expiry for most cash-style products and charges overnight financing set by the broker. In the EU, retail leverage is capped at 2:1.

Common mistakes

• Ignoring funding because each payment is small. 0.01% sounds trivial until you multiply by three payments a day and 365 days, and by the leverage.
• Confusing the funding rate with an annual rate. Funding is quoted per interval. Check the interval before comparing anything.
• Assuming funding is fixed. It changes every interval, can spike in fast markets and can flip from positive to negative.
• Holding a high-leverage perp for weeks. Funding drains isolated margin and pulls the liquidation price towards the market.
• Treating funding as a trading signal. Extreme funding has been followed by both continuation and reversal.
• Using an unauthorised venue to get higher leverage. You give up regulatory protection, often in breach of the venue's terms.

Most retail clients who trade leveraged products lose money: CFD providers' disclosures typically show between about 61% and 89% of retail accounts losing, and ESMA's 2018 analysis found 74% to 89%. Leveraged crypto products combine high leverage with very high volatility, and you can lose all of the money you put in. The crypto volatility and risk guide covers why.

Frequently asked questions

What is a perpetual future in crypto?

It is a derivative contract that tracks a crypto asset's price with leverage and has no expiry date. Because it never settles, a funding mechanism transfers payments between long and short holders at regular intervals to keep its price close to the spot index.

Who pays the funding rate?

When funding is positive, holders of long positions pay holders of short positions. When it is negative, shorts pay longs. Only positions open at the funding time pay or receive it, and the payment is based on the position's value, not the margin.

How often is funding paid?

On many large exchanges, every eight hours, which means three payments a day. Some venues use one-hour or four-hour intervals, and some shorten the interval in extreme conditions. The contract specification on the exchange gives the exact schedule.

Is a funding rate the same as a CFD overnight fee?

No. Funding is set by the gap between the perpetual and spot prices, changes every interval and can be received as well as paid. A CFD overnight fee is set by the broker, usually as an annual rate applied daily, and is often charged on both long and short positions.

Can EU retail traders use perpetual futures?

Only through firms authorised to offer them. In February 2026, ESMA reminded firms that perpetual futures can be CFDs under the national product intervention measures, which bring the 2:1 leverage cap for crypto, the 50% margin close-out, negative balance protection and a key information document. Offshore exchanges offering high leverage are generally not authorised to serve EU retail clients.

Do high funding rates mean the price will fall?

Not necessarily. High positive funding shows that leveraged long positions are crowded, and crowded markets can unwind sharply, but they can also stay crowded while the price keeps rising. Funding describes positioning; it is not a forecast.