Funding rates and pair positions

A dated futures contract converges on the spot price because it expires — at settlement there is nothing left to disagree about. A perpetual future never expires, so it has no settlement date to anchor it, and something else has to keep the contract near the price it references.

That something is funding. Periodically, one side of the market pays the other. When the perpetual trades above its reference, longs pay shorts, which makes holding a long more expensive and holding a short more attractive until the gap closes. When it trades below, the direction reverses. It is a balancing mechanism, not a fee the venue collects.

Because a pair is two perpetuals held at once, it has two funding legs running simultaneously. One is a long and one is a short, so on any given market they are on opposite sides of their respective funding payments.

They do not cancel. The two legs are different markets with their own supply and demand, so their funding rates are set independently and are rarely equal. What the position actually pays is the difference between them, and that difference can run in either direction: a pair can carry a net cost or a net credit, and which one it is can change while the position is open.

Funding accrues on elapsed time, not on movement. A pair position whose ratio has not moved at all still pays or receives funding for every interval it stays open. A position held for weeks has paid weeks of it.

This is the mechanical difference from an equity pair trade, where the equivalent cost is a borrow fee on the short leg alone and is usually smaller and steadier. Guides written about stocks — which is most of the material on pair trading — do not cover it, because in that setting it largely is not there.

A pair position removes much of the exposure to the market’s overall direction. It does not remove the cost of being in the market. The funding differential is a live, recurring cost of holding the position that exists independently of whether the thing you were right about happens.

It is also not a reason to hold or avoid any particular pair. A funding differential is a description of what two markets are charging right now, it changes, and a figure without the time it was observed is not a fact about anything. That is why every funding figure this site publishes carries the moment it was read.

Funding for each leg is a venue figure and appears on the asset pages alongside volume and open interest, each labelled with when it was read. For the mechanics of the position those costs apply to, see what pair trading is, and for the measurement framing around the spread itself, statistical arbitrage.