> For the complete documentation index, see [llms.txt](https://docs.perpetuals.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.perpetuals.xyz/trading/funding-rates.md).

# Funding Rates

Funding rates are a way to keep the price of a perp contract in line with the reference price of the asset.

Every hour, traders on one side of the market (either longs or shorts) pay a small fee to the other side—depending on whether the contract is trading above or below the oracle price of the currency pair.

If the perp is priced *higher* than the oracle price, longs pay shorts. If it's *lower*, shorts pay longs.

These payments go directly between traders. Perpetuals doesn't take a cut - and they help keep the market balanced by nudging prices back towards the reference price.

***

### How is the funding rate calculated?

The funding rate on Perpetuals follows standard perpetual futures methodology with adjustments for FX market characteristics.

**Formula:**

```
Hourly Funding Rate = (Premium Component / 8) + Interest Rate Component
```

**Where:**

* **Premium Component** = TWAP of (Mark Price - Oracle Price) / Oracle Price over the last hour
* **Interest Rate Component** = Fixed rate accounting for base/quote currency interest rate differential (typically 0% for most pairs)
* **Division by 8** = Distributes premium over 8-hour period (standard in centralized perp exchanges)

**Example:**

```
EUR/USD trades at 1.0960 (mark price)
Oracle price: 1.0950
Premium: (1.0960 - 1.0950) / 1.0950 = 0.091%
Hourly Funding: 0.091% / 8 = 0.011%

If you hold a $10,000 long position:
You pay: $10,000 × 0.011% = $1.10 per hour to shorts
```

***

### Why dampening for FX?

The funding rate dampening (dividing by 8) creates balanced funding payments that keep prices tethered to reality while rewarding traders who provide market stability.

Unlike crypto perpetuals that can reference highly liquid 24/7 spot markets, FX perpetuals need to account for:

* **Market structure differences** - Traditional spot FX has natural spread variations across liquidity providers
* **Regional trading hours** - While Perpetuals operates 24/7, traditional FX liquidity varies by timezone
* **Price discovery** - Allowing the mark price to diverge slightly from spot rates enables on-chain price discovery without excessive funding costs

The dampening multiplier allows for wider divergences between mark and oracle prices compared to crypto perps, which is appropriate given the unique characteristics of FX markets and the fact that the EMA-adjusted price is incorporated into the mark price calculation.

***

### Interest Rate Component

For certain currency pairs, an interest rate component may be added to account for the differential between base and quote currency rates.

**Example:**

* USD/JPY where USD rates are 5.5% and JPY rates are 0.1%
* Annual differential: 5.4%
* Hourly component: \~0.0006%

This ensures that the funding rate reflects not just spot price deviations but also the carry cost of holding currencies.

***

### Viewing Funding Rates

**In the Trading Interface:**

* Live funding rate displayed on each pair
* Historical funding rate charts
* Next funding payment countdown

**In Your Position:**

* Accrued funding payments shown in real-time
* Positive = you're paying funding
* Negative = you're earning funding

***

### Funding Payment Examples

#### Scenario 1: Positive Funding (Perp > Spot)

```
EUR/USD Mark Price: 1.1000
EUR/USD Oracle: 1.0950
Funding Rate: +0.01% per hour

You hold: $50,000 long position
Payment: -$50,000 × 0.01% = -$5.00 per hour (you pay shorts)

Over 24 hours: -$5 × 24 = -$120 per day
```

#### Scenario 2: Negative Funding (Perp < Spot)

```
GBP/USD Mark Price: 1.2900
GBP/USD Oracle: 1.2950
Funding Rate: -0.008% per hour

You hold: $30,000 short position
Payment: -$30,000 × -0.008% = +$2.40 per hour (you earn from longs)

Over 24 hours: +$2.40 × 24 = +$57.60 per day
```

***

### Funding During News Events

Major economic releases can cause temporary funding spikes:

* **NFP (Non-Farm Payrolls)**
* **FOMC decisions**
* **CPI / inflation data**
* **Central bank announcements**

During these periods:

* Funding rates may temporarily exceed normal ranges
* Market imbalances create opportunities
* Consider closing before event if funding is extremely negative

***

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