Funding Rates
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Funding rates are a mechanism used in perpetual futures markets to help the price of the futures contract stay close to the underlying asset's spot price. Perpetual futures contracts, unlike traditional futures, do not have an expiration date, so these funding rates serve as a way to balance the market.
When the funding rate is positive, the perp trades at a higher price than its underlying asset. Conversely, a negative funding rate indicates the perp trading lower than its underlying asset.
Funding payments are determined by the funding rate. Longs pay shorts when the funding rate is positive, and shorts pay longs when the funding rate is negative. The result is a rubber-band effect that enforces a degree of parity between the price of a perp and spot price.
Check out the section of our docs for a more comprehensive explanation and examples.