Funding Rate

Funding is the anchoring mechanism of perpetual futures. Every funding interval (commonly 8 hours), holders on one side pay the other in proportion to position size:

funding payment = position notional × funding rate

The rate is derived from the perp's premium to spot. Perp trading rich means positive funding and longs pay shorts; perp at a discount means negative funding and shorts pay longs. Paying to hold the crowded side nudges the price back toward spot.

Why it matters to strategies

Funding is a carry cost in disguise. A perp position held through funding timestamps accrues a real cash flow: at +0.01% per 8 hours, a common calm level, a permanent long pays about 11% annualized, and in euphoric markets rates spike far higher. Persistently high funding also reads as a sentiment gauge, since it means longs are crowded, and extremes often precede squeezes. Finally, funding is itself a yield source. Funding harvesting (short the perp, long spot) is the perpetual-market cousin of the cash-and-carry trade: market-neutral, paid the funding stream instead of a convergence.

AlphaProve exposes the latest funding rate to strategies (ctx.latest_funding_rate), so rules can filter or fade crowded conditions.

On AlphaProve

Reading the rate in a rule is only half of it. Because funding sits in the simulated cost model, the engine debits or credits each payment as a position crosses a funding timestamp, so a perp held for days carries its funding bill whether or not the strategy ever inspects the rate. The tearsheet reports net PnL after both fees and funding, which is where a strategy that stays chronically long in a high-funding regime reveals the drag its headline return would hide.