Derivatives foundations · Lesson 2 of 3
Funding mechanics
How periodic funding keeps perpetuals near spot.
7 minute read
Why funding exists
Many perpetual futures use funding to help keep the contract price near its reference spot price. Depending on the rate and your direction, longs may pay shorts or shorts may pay longs.
The direction and size of funding can change, and the interval, calculation and settlement rules vary by venue, so it is a cost to track rather than a fixed constant.
Key takeaway
Use these concepts to understand the market, not to assume a particular outcome. Always define uncertainty and risk before making a decision.