Here is the most direct answer first: when the funding fee is negative, shorts pay longs. If you are short, you pay. If you are long, you receive. That is the core idea.
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Below, I will break down how this mechanism works, why it happens, and how you should understand a negative funding fee when you see it.
Step 1: The funding fee is essentially "rent" between longs and shorts
Perpetual futures have no expiry date, so you can hold them indefinitely. But because there is no expiry, the contract price can drift too far from the spot price. The funding fee exists to pull that gap back, by making traders pay each other to bring the price closer to spot.
How it works: Once you understand that the funding fee is a direct payment between longs and shorts and the exchange does not take a cut, the rest becomes much easier.
Completion standard: You should be able to explain the purpose of the funding fee: it keeps the perpetual contract price from moving too far away from the spot price.
Whether the funding fee is positive or negative reflects which side of the market is more crowded:
Positive funding fee (+): The contract price is higher than spot, meaning longs are more aggressive. Longs pay shorts. This creates a holding cost for longs, pushing them to either keep paying or close their positions.
Negative funding fee (-): The contract price is lower than spot, meaning shorts are more aggressive. Shorts pay longs. This creates a holding cost for shorts, pushing them to either keep paying or close their positions.
Step 2: Who pays and who receives when the funding fee is negative?
Case A: You hold a short position
In this case, you are the one who pays. The system automatically deducts the fee at 8:00, 16:00, and 24:00 (UTC+8) every day, meaning it is collected once every 8 hours.
How to handle it: You can avoid paying the current funding fee by closing your position before the settlement time. At the settlement moment, the system scans your position. If you still hold a position at that time, you must pay or receive that period's fee. The settlement process lasts about 1 minute, and new positions opened during that window may also be counted.
Completion standard: In Assets - Trading Account, you can see a "Funding Fee" deduction record with a negative amount.
Case B: You hold a long position
In this case, you are the one who receives. The fee paid by shorts is credited directly to your account.
How to handle it: You do not need to do anything. The system settles automatically and the money goes directly into your account.
Completion standard: In Assets - Trading Account, you can see a "Funding Fee" credit record with a positive amount.
Step 3: What does a negative funding fee mean?
A negative funding fee means short positions are more crowded than long positions. The overall market sentiment is leaning bearish.
But that does not necessarily mean the price will fall. In fact, sometimes the price is rising while the funding fee remains negative. That suggests the rise is mainly driven by spot buying rather than leveraged contract buying, which can actually be a healthier structure.
Common mistake: Some people see a negative funding fee and think it is a "bottom signal", so they go all-in on longs. The funding fee is a snapshot of current market conditions, not a prediction tool. It can stay negative for a long time, and during that period the price can go up or down. It only tells you that shorts are currently the majority. It does not tell you where the price will go tomorrow.
Risk warning:
When the funding fee is negative, shorts bear the holding cost. But you cannot use funding fee income to offset directional losses. For example, if you open a long position and the negative funding fee pays you a small amount each day, it will not make up for a 5% crash. Do not ignore your directional risk just because the funding fee is negative.
How to verify after settlement
After the settlement time, go to Assets - Trading Account - Funding Records and filter by "Funding Fee". You will see the amount you received or paid for that period. A negative amount means you paid, while a positive amount means you received. If you closed your position before settlement, there will be no funding fee record for that period.
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FAQ
Q: Is the funding rate fixed?
A: No. The funding rate is calculated every minute, and the actual charge uses the rate calculated at the settlement minute. The formula is quite complex and includes factors such as the premium index and the interest rate, which is usually 0.01%. But you can understand it as a value that reflects the relative strength of longs and shorts over the past 8 hours.
Q: When the funding rate is negative, can I keep receiving money as a long?
A: Yes, as long as you still hold the position at settlement time. But the amount you receive will not be very large. Typically, the funding rate fluctuates between ±0.01% and ±0.1%. For example, at 0.05%, a 10,000 USDT position would receive 5 USDT every 8 hours. If the market remains bearish, this condition can last a long time, but the directional risk is also greater.
Q: Where is the funding fee deducted from? What if there is not enough margin?
A: It is deducted from your available margin. If your available margin is insufficient, the system will try to cancel your open orders to free up margin. If that is still not enough, it will deduct from your position margin until it reaches the maintenance margin level. Beyond that, you face liquidation risk.
