Funding rates, explained for people who skip the math
What funding is, why it exists, how to read it, and the one number that should change how you size every perp trade.
If you trade perps, you pay (or earn) funding every few hours. Most retail traders treat this like a tax they vaguely know about but never actually calculate. That's expensive.
Here's the whole thing in plain language.
Why funding exists at all
A perp contract has no expiry. A normal futures contract does — at expiry, the futures price has to converge with the underlying spot price, which keeps them tethered.
Perps don't have that built-in convergence. So exchanges use funding rates to do the job manually. When the perp price drifts above spot, longs pay shorts. That makes longing more expensive, which dampens demand, which pulls the price back toward spot. When the perp drifts below spot, shorts pay longs and the same loop runs in reverse.
That's it. Funding is a fee one side pays the other to keep the perp tracking spot.
How to read the number
Funding is usually quoted as a percentage charged at some interval — every 1, 4, or 8 hours depending on the venue. Hyperliquid charges hourly, Binance every 8 hours, dYdX every hour, etc.
A funding rate of +0.01% per hour means longs pay 0.01% of their position size to shorts every hour. That sounds tiny. Annualize it:
0.01% × 24 × 365 = 87.6% APR
That is not tiny. If you're long with 5% expected upside and funding eats 87.6% APR, you need the move to play out fast or you bleed out waiting for it.
The rule of thumb: anything above +0.03% hourly (or +30% APR) is meaningful drag. Anything above +0.1% hourly (+100% APR) is the market screaming that one side is crowded.
What extreme funding actually tells you
When funding is wildly positive, longs are paying through the nose to stay long. That means everyone wants to be long and the venue is asking them to pay for the privilege. Historically, extreme positive funding correlates with local tops more often than not — not always, not deterministically, but enough to make you want to think twice before joining.
The reverse for extreme negative funding. Shorts paying longs heavily means short conviction is crowded. Often a bottom signal.
This isn't a contra-trade machine. It's a "what does the market think it knows" signal. Useful as input, not as a buy/sell button.
The one number that should change your sizing
Before you open a perp position, ask: "What's the funding rate, and what's my expected hold time?"
If you're scalping a few hours, funding barely matters. If you're holding a directional view for two weeks at +50% APR funding, you're paying ~2% of position size before you make a dollar. That changes whether the trade is worth taking.
The math nobody does:
Funding cost = position size × funding APR × (hold days / 365)
A $10,000 long held two weeks at +50% APR = $10,000 × 0.50 × (14/365) = $192. That's your break-even drag. If your expected upside is $300, you've cut your edge by two-thirds.
What we do with this
Most of what Archer does on funding is the boring lookup: pull the current rate before you open, surface it during the position review, flag when funding is doing something unusual on a token you hold. Not because the number is hard — it's not — but because you weren't going to check, and the trade is worse for it.
Funding isn't an exotic concept. It's a recurring fee with a simple formula. Treating it as a footnote is one of the most consistent reasons retail traders underperform their own thesis.