Funding rate
Payment between longs and shorts in a perpetual contract that pulls the perp price toward the spot index. Sign flips with the direction of position skew.
Aliases: funding, perp funding
Funding rate is the economic mechanism that anchors a perpetual contract’s price to the spot underlying. When the perp trades above spot, longs pay shorts; when below, shorts pay longs. The period is typically 1 or 8 hours depending on the protocol.
Why it exists
Without funding, perp price drifts off spot easily: traders buy leverage, push mark up, shorts become unwilling to stand, skew expands. Funding makes holding the skew expensive:
- Up-skew → costly to be long → longs close, new shorts open → perp drifts back to spot.
- Down-skew → costly to be short → mirror image.
Formula
Simplified:
funding_rate = clamp(premium_index + interest_rate_diff, −cap, +cap)Where premium_index reflects mark-versus-index, interest_rate_diff is the rate gap between the two assets (≈0 in crypto), and cap is the protocol’s hard limit so an extreme skew does not punish positions in a single period.
Concrete numbers
In a calm market, funding oscillates between −0.01% and +0.01% per 8-hour period (≈0.03% daily, ≈10% annualised).
In a strongly bullish market BTC funding can hit 0.1% per 8 hours = 0.3% daily = over 100% annualised paid by longs to shorts. That is a steep cost for leverage.
On TON
Storm Trade applies the same principle: skew in TON, BTC, ETH perps causes the dominant side to pay funding. Exact rate and period are protocol-defined; check the current funding in the interface before opening.
Funding-aware strategies
- Cash-and-carry / delta-neutral. Long spot + short perp. With positive funding, spot does not yield, but the short side earns funding — synthetic stablecoin yield from a volatile asset.
- Funding arbitrage. When funding diverges across venues, traders take opposing positions to harvest the gap.
Risks
- Funding is easy to underestimate. On long leveraged positions it bleeds capital faster than it looks.
- On a sharp reversal, funding flips sign and a delta-neutral position becomes expensive the other way.
- On illiquid perps the cap is high and a one-off penalty for skew can be painful.
Funding rate is the defining feature that separates perpetuals from classic futures. Trading perps over any meaningful horizon without understanding it is reckless.