A perp can remain open without a scheduled expiry. That creates a pricing problem: what keeps its buyers and sellers trading near the underlying asset's price? Funding is the recurring payment designed to help maintain that connection.
Funding is also part of the economics of your trade. To understand the eventual result, separate three things: the price move, the cost of getting in and out, and the payments made or received while holding the position.
How funding encourages the price to track
Suppose demand pushes a perp above its underlying reference. A positive funding payment generally makes longs pay shorts. It becomes more expensive to hold the long and more attractive to take the short side. A trader who can buy the underlying and short the expensive perp may also help narrow the gap.
When the perp is sufficiently cheap, funding can turn negative and shorts pay longs. The incentive reverses. Actual formulas can include an interest component, averaging, and limits, so the sign is not determined by one instantaneous price comparison. Hyperliquid's funding specification describes its calculation and hourly payments.
Funding changes the incentive to hold each side; trading by market participants moves the price. It therefore supports a peg without making price equality automatic. Constraints on buying the underlying, scarce capital, or a fast-moving market can leave a gap.
Funding accumulates over time
A funding rate can be a tiny percentage for one interval. Whether its dollar effect is small depends on exposure, holding time, and how the rate changes. It can be a payment or a receipt for your position. It is not necessarily a fee kept by the exchange.
Use a hypothetical hourly rate of 0.001% on our $2,000 long. This is a teaching assumption, not a current market quote:
$2,000 × 0.00001 = $0.02 per hour.
Twenty-four identical payments total $0.48. Funding is charged on the applicable position notional, not just on the margin supporting it. Hyperliquid uses the oracle price to calculate that notional. Both the price and the rate can change during a real trade.
Receiving $0.48 would improve the result by the same amount, but a 1% adverse price move on $2,000 loses $20. Funding income does not remove the much larger price exposure. Read the interval whenever you compare rates: hourly and eight-hour quotes describe different costs.
Why buying and selling have different prices
The bid is the highest resting price someone offers to pay. The ask, or offer, is the lowest resting price someone will accept to sell. Their difference is the bid–ask spread. In an ordinary continuous order book, compatible buy and sell orders at the same price would normally trade rather than remain as opposing resting quotes.
Imagine a midpoint of $100, a bid of $99.995, and an ask of $100.005. The quoted spread is $0.01, or one basis point of $100. One basis point, abbreviated bp, is 0.01%; 100 basis points equal 1%.
A buyer taking the available offer pays $100.005. Selling immediately at the unchanged bid receives $99.995. For 20 units, that round trip loses $0.20 even with no exchange fee. Each side crossed half the quoted spread relative to the midpoint; the complete round trip crossed one full spread. Larger orders may also move through worse price levels, adding execution cost.
The cost of a round trip
Assume a one-basis-point fee on entry and another on exit, a one-basis-point quoted spread, and the hourly funding rate above. Keep notional approximately $2,000, with unchanged quotes for the spread estimate and enough liquidity to fill at the best bid and ask.
| Cost | Hypothetical assumption | Amount |
|---|---|---|
| Entry fee | 1 bp × $2,000 | $0.20 |
| Exit fee | 1 bp × approximately $2,000 | $0.20 |
| Round-trip spread | 1 bp quoted spread | $0.20 |
| Funding paid | $0.02 × 24 hours | $0.48 |
| Total | No additional price impact assumed | $1.08 |
A favorable 0.20% midpoint move produces $4 before those costs and about $2.92 after them. The approximate break-even move is $1.08 / $2,000 = 0.054%, or 5.4 basis points. Extending the holding period adds funding under these assumptions; a wider spread increases the execution hurdle.
Actual fees depend on the venue, account, market, and execution type. A displayed zero fee would remove an explicit charge without removing the spread or price impact. The SEC's discussion of execution explains why the price received matters alongside commissions.
Estimates and actual fills
Before trading, a midpoint-based estimate can subtract the expected spread and impact separately. After trading, use actual entry and exit fills to calculate price profit, then subtract fees and add net funding. The fills already contain the spread and slippage; subtracting them again would understate the result.
That reconciliation helps identify what to improve. A correct direction can produce a poor trade if the expected move is too small, the execution too expensive, or the wait longer than the idea allowed.
Try the calculation: Under the same assumptions, the $2,000 position gains 0.50% before the estimated round-trip costs. What remains?
Show the calculation
$2,000 × 0.005 = $10. Subtract $1.08 to get $8.92. This estimate assumes the same notional, spread, fee rates, and 24 hourly funding payments.