What is the funding rate and why does it exist?

Q: What is the funding rate and why does it exist?

The funding rate is a percentage-based rate derived from the average difference between the futures price and the spot price over a time period determined by the exchange. It exists to keep the futures price closely aligned with the spot price by periodically transferring value between long and short positions. Key Points: For Coinbase Derivatives Exchange - Funding adjustments are accrued hourly (every hour, on the hour) When the funding rate is positive : long position holders pay short position holders When the funding rate is negative : short position holders pay long position holders

Question

Accepted Answer

The funding rate is a percentage-based rate derived from the average difference between the futures price and the spot price over a time period determined by the exchange. It exists to keep the futures price closely aligned with the spot price by periodically transferring value between long and short positions.

Key Points:

For Coinbase Derivatives Exchange - Funding adjustments are accrued hourly (every hour, on the hour)
When the funding rate is positive: long position holders pay short position holders
When the funding rate is negative: short position holders pay long position holders