Key takeaways
- Funding is a payment between traders on opposite sides of a perpetual future. It exists because the contract has no expiry date to pull its price back to the spot price.
- When the rate is positive, longs pay shorts. When it is negative, shorts pay longs. The side you hold decides whether funding is a cost or a credit.
- Funding is charged on the position's value, not on your margin, and it accrues for as long as you hold the position, even if the price does not move.
- It is separate from the trading fee, and the rate can change from one interval to the next, so it cannot be known for a long hold in advance.
- Perpetual futures are not available in the UAE. This guide explains the mechanics only.
For information only. Not investment advice. This guide explains how a charge works and does not tell you whether or how to trade. Read the risk disclosure first.
Why perpetual futures need funding
A dated futures contract settles on a known day, so its price is drawn towards the spot price (the price for immediate delivery) as that day approaches. A perpetual future has no such day. Something else has to do the same job, and that something is the funding rate. The guide to perpetual futures sets out the full contract; this guide covers only the funding mechanism.
The study cited in that guide, He, Manela, Ross and von Wachter, Fundamentals of Perpetual Futures, notes that nothing forces a perpetual to meet the spot price at any given moment. Funding makes drifting away from spot costly for one side and rewarding for the other, which gives traders a reason to close the gap.
Who pays and who receives
The direction follows the sign of the rate. Venues differ in how they calculate it, so the table shows the general pattern rather than any one venue's formula.
| Market state | Funding rate | Long position | Short position |
|---|---|---|---|
| Contract trades above spot | Positive | Pays | Receives |
| Contract trades below spot | Negative | Receives | Pays |
| Contract trades at spot | Close to zero | Little or nothing | Little or nothing |
Holding the crowded side therefore becomes costly, which draws traders to the other side and narrows the gap. Funding is a cost or a credit between traders. The venue does not keep it as income.
How a payment is worked out
At each funding interval the venue applies the current rate to your position. In outline, the payment is the position's value multiplied by the funding rate for that interval. Two points follow from that.
- The base is the position, not the margin. A 10,000 USD position pays funding on 10,000 USD, however little margin supports it. Leverage therefore makes funding weigh more against your capital, as it does with trading fees.
- The position value moves. If the price rises, a long position's value rises and so does the payment at a given rate.
How the rate itself is built differs between venues. Many compare the contract price with an index of spot prices and may add an interest component or limit the rate, but Backpack's formula, interval and caps are not stated in the sources read for this guide. Read the contract page for each market before you rely on a figure. Intervals vary by venue, and the study cited above describes eight hours as typical.
A worked example with invented numbers
The rate below is invented to show the arithmetic. It is not a Backpack rate and not a forecast. Take a position worth 10,000.00 USD, a funding rate of 0.01% per interval and three intervals held.
| Case | Rate per interval | One interval | Three intervals |
|---|---|---|---|
| Long, positive rate | +0.01% | -1.00 (paid) | -3.00 |
| Short, positive rate | +0.01% | +1.00 (received) | +3.00 |
| Long, negative rate | -0.01% | +1.00 (received) | +3.00 |
At this invented rate the cost is small beside a price move, but it never pauses. Hold the same position for many intervals and the total grows in step. If the rate rises, so does the bill. The perpetual futures guide follows the same arithmetic through a full position, with fees and a price fall added.
Funding is a holding cost on the paying side. It is charged on the position, for as long as the position is open.
Funding compared with trading fees
Funding and trading fees are easy to confuse because both reduce your margin. They are different charges.
| Feature | Trading fee | Funding |
|---|---|---|
| Paid to | The platform | Other traders |
| When | On each order | At each interval while the position is open |
| Known in advance | Yes, from the schedule | Only for the current interval |
| Can be a credit | No | Yes, on the receiving side |
The trading side is covered in maker and taker fees, and Backpack publishes its tiers on the fee schedule. For how all the costs combine, see how trading fees eat returns.
What funding does not tell you
- It does not predict price. A high rate shows that one side is crowded. It does not say which way the price will go next.
- It can change sign. A credit this interval can become a cost at the next.
- It adds to leverage risk. Funding paid comes out of margin, which brings a position closer to liquidation, the forced closing of a position when margin falls too low. See what leverage does to a position.
- It does not remove the gap in a stress. In a disorderly market the perpetual and spot prices can still diverge sharply.
What this means in the UAE
In Dubai, Backpack is provided by Trek Labs Ltd FZE, licensed by the Virtual Assets Regulatory Authority (VARA) for Exchange Services, spot trading only, licence no. VL/23/07/001. Backpack's licence disclosure says the licence does not cover futures or margin trading, so perpetual futures, and the funding that comes with them, are not available to clients in the UAE. Spot trading has no funding. The guide to spot versus derivatives trading explains the difference, and the page on the companies behind Backpack sets out who provides which product.
Four checks before holding any perpetual position
- Find the interval and the formula. Read the contract page for the market, not a summary.
- Check the current rate and its sign. Know whether your side pays.
- Multiply by how long you plan to hold. A rate that looks trivial for one interval is a running cost over days.
- Keep margin above maintenance. Funding paid reduces it.
Questions on products and availability are answered in the Backpack FAQ, and the other Learn guides cover related topics.
Frequently asked questions
What is a funding rate in simple terms?
A funding rate sets a recurring payment between traders who hold long positions and traders who hold short positions on a perpetual future. It is designed to pull the contract price towards the spot price. It is a payment between traders, not a fee collected by the venue.
Who pays funding, longs or shorts?
It depends on the sign of the rate. When the perpetual trades above spot and the rate is positive, longs pay shorts. When it trades below spot and the rate is negative, shorts pay longs. Conventions differ by venue, so read the contract terms for the market you trade.
How often is funding paid?
Intervals vary by venue. The study cited in the perpetual futures guide describes eight hours as typical. The interval Backpack uses is not stated in the sources read for this guide, so check the contract page before opening a position.
Is funding the same as a trading fee?
No. A trading fee is charged by the platform on each order. Funding passes between traders at set intervals for as long as a position is open. Both reduce your margin if you are on the paying side, so a full cost estimate includes both.
Can I earn money from funding?
You receive funding when you are on the receiving side, but it is a credit that depends on market conditions and can reverse at the next interval. It is not a yield, and price moves against your position can far exceed it.
Can I use funding-based perpetual futures from the UAE?
No. Perpetual futures are not available in the UAE. Backpack's Dubai licence, held by Trek Labs Ltd FZE under VARA, covers spot trading only, so this guide explains the mechanics and is not an offer to UAE clients.
Sources
- He, Manela, Ross and von Wachter, Fundamentals of Perpetual Futures, arXiv:2212.06888, as read for the perpetual futures guide on 12 October 2026. It was not re-read for this guide.
- Backpack, Trading Fees, support site, read 6 October 2026. It was not re-read for this guide. The sources read state no funding interval or formula.
- Backpack, VARA License Information, support site, as read on 12 October 2026. It was not re-read for this guide.
- Virtual Assets Regulatory Authority, public register of licences, the register cited in the footer for licence no. VL/23/07/001. The entry was not re-read for this guide.