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The funding rate, and why the APR you're shown is usually a fiction
A perpetual contract has no expiry, so something has to keep its price tethered to the underlying. That something is the funding rate — a payment made every few hours between the two sides of the market. Understanding what it is worth net of costs is the difference between a strategy and an expensive lesson.
What funding actually is
When the perpetual trades above spot, longs pay shorts. When it trades below, shorts pay longs. The payment is settled at fixed intervals — commonly every eight hours, though some contracts settle every four or every hour — and the size is set by how far the contract has drifted from the index.
It is not a fee the exchange takes. It moves between traders, and the exchange's cut is charged separately.
The trade people build on it
Buy the asset on spot, short the perpetual in the same size. Price movements cancel: what you lose on one leg you gain on the other. What remains is the funding, collected for as long as it stays positive. Delta neutral, in the jargon; cash and carry, in older markets.
It looks like free money, which is why the internet is full of pages advertising it as such.
The arithmetic those pages leave out
You pay to open the spot leg, open the perpetual leg, close the spot leg, and close the perpetual leg. Four fees. On a typical non-VIP schedule that is roughly 0.31% of notional for the round trip.
Now put that next to what you collect. A funding rate of 0.01% per eight hours — an ordinary reading on a major pair — is the number those tables annualise to a cheerful +10.95%.
Work it through
The exchange takes 0.31% once. You collect 0.01% every eight hours. You need 31 payments to get back to where you started — that is roughly ten days of holding the position before the trade has paid for its own execution.
Exit after three days and the same position that advertised +10.95% has returned approximately −26.8% annualised. Not because anything went wrong. Because you paid the fees and left before the funding covered them.
The number that actually matters
Breakeven time is a risk measure, not a return measure. A trade that needs ten days to clear its cost needs your luck to hold for ten days. One that clears in twelve hours needs twelve.
This is the reason to be suspicious of the highest numbers on any funding table. Extreme rates appear precisely where something is breaking — a fresh listing with no spot liquidity to arbitrage it, a meme coin mid-squeeze, a market reacting to news. Those conditions produce the biggest rate and the shortest half-life, and they cluster on the thinnest books, where the spread you cross on entry eats days of funding by itself.
The risk nobody prices
The two legs are supposed to cancel. They do, on paper. In practice a sharp move against your short can consume its margin before your spot gain is credited as collateral — and if you cannot top up in time, the exchange closes the short for you. The hedge disappears, you are left holding the asset outright, and it happens at the worst possible moment by construction.
Whether your spot holding counts as collateral for the perpetual leg depends on the account type and the venue. Check it before you open anything, not after.
Where you can actually do this
The trade needs a venue offering perpetuals where you live, which is a shorter list than most people expect. Outside the EEA, Bybit and OKX both run deep perpetual books with competitive taker schedules. Inside the EEA the field narrows to venues holding MiFID II permissions alongside MiCA — OKX Europe among them. Referral links, no extra cost to you.
If you want to run this
- Ignore gross APR. Subtract four fees and annualise over the period you actually intend to hold.
- Check the settlement interval. A 1-hour and an 8-hour rate are not comparable numbers, and some dashboards display them side by side as though they were.
- Watch the spread, not just the rate. On a thin book, entry costs can exceed a week of funding.
- Size for the squeeze, not for the expected case.