XBO.com - Image Futures Trading

What are funding fees in crypto futures trading?


Funding Fee: A recurring fee paid between traders in a perpetual futures contract to ensure that the contract price closely tracks the underlying asset's spot price.

Calculation of Funding Fee:

Market Imbalance: The funding fee is determined by the difference between the perpetual contract price and the spot price.

Pay and Receive: Long positions may pay funding to short positions, or vice versa, depending on market conditions.

Purpose of Funding Fees:

Maintaining Peg: Ensures that the perpetual contract's price aligns with the underlying spot market, preventing large deviations.

Incentive Alignment: Encourages traders to adjust their positions based on market conditions, promoting balance.

Funding Interval:

Regular Payments: Funding fees are typically settled at fixed intervals, often every 8 hours.

Transparency: The predetermined schedule enhances market predictability.

Components of Funding Fees:

Interest Rate: A variable interest rate component, reflecting market sentiment and demand for leverage.

Premium/Discount: An adjustment based on the difference between the contract price and the underlying asset's spot price.

Impact on Traders:

Profit or Cost: Traders either pay or receive funding based on their position and market conditions.

Cost of Carry: Similar to the cost of carry in traditional finance, funding fees account for holding a position over time.

Funding Fee Strategies:

Position Management: Traders may adjust positions before funding intervals to optimize costs or benefits.

Arbitrage Opportunities: Skilled traders may capitalize on pricing discrepancies between perpetual and spot markets.

Automatic Execution:

Automated Process: Funding fees are automatically debited or credited to traders' accounts.

Transparency: The automated nature of funding fee settlements adds transparency to the process.


Market Volatility: Funding fees can vary with market conditions, especially during periods of high volatility.

Platform Specifics: Different exchanges may have variations in how funding fees are calculated and applied.

Risk Management:

Awareness: Traders should be aware of upcoming funding intervals and their potential impact on positions.

Account Balances: Sufficient account balances are crucial to cover potential funding fee payments.


Understanding funding fees is essential for crypto futures traders, as they play a crucial role in maintaining the stability of perpetual contracts. Traders should factor these fees into their strategies and risk management practices.

Was this article helpful?