Preconditions
- You already hold any short position in a perpetual contract on a crypto exchange.
- You can distinguish between "contract price" and "spot index price": the positive or negative value of funding rate is determined by the direction of the spread between the two.
A negative funding rate means short position holders pay fees to long position holders. Even if the price is falling, as long as you hold a short position, you have to pay the corresponding fee at the settlement moment.
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Many traders wonder: "The price is falling, my judgment is correct, why do I still have to pay money to the bulls?" — This is because the funding rate is not charged "according to the direction of price movement", but "according to the direction of the spread between the perpetual contract and the spot index". A negative funding rate indicates excessively crowded short positions, and the contract price is lower than the spot price.
Step 1: Find the current funding rate of the contract where your short position is held
What to do: Check the funding rate value and settlement countdown of the target contract on the trading page.
How to do it: Open the exchange's contract interface, usually find the "Funding Rate" and "Time to Next Settlement" fields below the K-line chart or in the "Contract Info" section. Most mainstream platforms settle funding fees every 8 hours (00:00, 08:00, 16:00 UTC+8).
Scenario A: Funding rate is negative (e.g. -0.01%) → The perpetual contract price is lower than the spot index price, indicating crowded shorts. Scenario B: Funding rate is zero or positive → Shorts do not need to pay fees, and when the rate is positive, shorts receive payment instead.
Completion criteria: Confirm that the current funding rate of the contract is indeed negative.
Step 2: Confirm if you are holding the position at the settlement moment
What to do: Verify whether you actually need to pay this fee. The only rule is: funding fee is generated only if you hold the position at the time of settlement.
How to do it: Check the countdown displayed by the system. If the settlement time is approaching and you still hold the short position, the fee is unavoidable.
Scenario A: You still hold the short position when the settlement time arrives → You need to pay the fee. The system deducts it automatically per the formula: Funding Fee = Notional Value of Position × Funding Rate. Under negative rate, shorts pay to longs. Scenario B: You have closed the short position before settlement → No fee is required. Closing position early does not generate any funding fee.
Completion criteria: Check your account transaction records within 5 minutes before and after the settlement time (e.g. 08:00 UTC+8) to confirm if there is a funding fee deduction record.
Position Risk Warning
Extended period of negative funding rate indicates extremely bearish market sentiment, but it is also a signal of overly crowded short positions — historically, deep negative funding rates for Bitcoin often correspond to phased price bottoms, which are usually followed by short squeezes that trigger rapid price rebounds. If you are profiting from a short position but keep paying fees at every settlement, once the price reverses, your accumulated profits may not be enough to cover the continuous fee expenses, and you may even get liquidated in the isolated margin mode as margin gets deducted multiple times. When negative funding rate persists, short position holding costs keep accumulating, which may directly push your margin below the maintenance margin ratio.
Step 3: Calculate the actual payable amount to judge whether it is worth continuing to hold the short position
What to do: Calculate the exact amount you need to pay at each settlement, to measure if you can afford the continuous cost.
How to do it: Find the "notional value of your position" (for USDT-margined contracts: contract quantity × mark price), then multiply it by the funding rate.
Example: You hold a short position of a token with 100,000 USDT notional value, and the funding rate is -0.01%. Funding fee = 100000 × 0.01% = 10 USDT, paid by shorts to longs.
Scenario A: The calculated fee ≤ the floating profit of the short position during the holding period → The cost is acceptable, you can continue holding. Scenario B: The fee has eaten up most of your floating profit, or even exceeded it → Consider closing the position before settlement, or reducing position size to lower the total notional value.
Completion criteria: Get the exact fee number, and make a decision on whether to continue holding the short position accordingly.
Common Misconceptions
Many traders see a negative funding rate and mistakenly think "shorts are receiving money", which is completely the wrong direction — when the rate is negative, shorts are paying, and longs are receiving the fee. Another common mistake is believing that if prices keep falling, shorts should not pay any fees. But the funding rate is determined by the "spread between contract and spot", not the "direction of price movement". Even if the price keeps dropping for consecutive periods, as long as the contract price is lower than the spot price (in backwardation), the negative rate will persist, and shorts will have to keep paying.
Operation Verification Method
10 minutes after settlement, open the "Funding Records" or "History" section of your exchange, check if there is a funding fee deduction entry. If you see a deduction, it means your short position has been charged the corresponding fee; if you see an incoming deposit, it means the funding rate has turned positive. Verification channel: Go to the "Assets" section on the contract page, confirm that the change in your available balance matches the fee amount.
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Follow-up Operation Suggestions
If you decide to hold the position through the next settlement, calculate the impact of the upcoming 8-hour funding rate on your floating profit. If the negative rate lasts for more than 2 consecutive settlement periods, you can pay attention to its contrarian indicator value — historical data shows that prolonged negative funding rates often correspond to short-term price bottoms. You can check aggregated funding rate data across all exchanges via Coinglass at funding rate.
