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What is a perpetual futures contract and how funding costs accrue
The finding
A perpetual futures contract is a derivative with no expiration date that relies on periodic funding cash flows between longs and shorts to track spot prices.
BitMEX introduced the perpetual contract structure in 2016 to eliminate the rollover costs of dated futures.
Holding costs for an active contract vary across exchanges, reaching a 0.0102% per 8-hour spread on ZEC contracts today.
A perpetual futures contract is a financial derivative that trades without an expiration date. Traders asking what is a perpetual futures contract often encounter the funding mechanism, which shifts cash between longs and shorts every eight hours to keep the contract price aligned with the spot market.
Traditional commodity and financial futures expire on a fixed date every month or quarter. At expiry, traders must settle the position in cash or deliver the underlying asset. To maintain exposure beyond that date, a trader must close the expiring contract and purchase the next contract month, incurring transaction fees and price spread friction during every rollover.
In 2016, cryptocurrency exchange BitMEX created the perpetual contract to remove fixed expiration dates entirely. It is a financial product design rather than an inherent market law. Instead of forcing physical delivery or monthly cash settlement, the contract runs continuously.
Worth knowing
Perpetual futures track spot prices through direct cash transfers between position holders rather than asset delivery at maturity.
Understanding what is a perpetual futures contract
Because a perpetual contract never expires, its market price could drift away from the spot market price indefinitely without an enforcement mechanism. The contract anchors itself to spot through a periodic funding rate.
When the perpetual market price trades above the spot price, the funding rate becomes positive. Long position holders pay cash directly to short position holders. This payment makes holding long positions more expensive and rewards short positions, encouraging order flow that pushes the derivative price back toward spot.
When the perpetual price trades below the spot price, the funding rate turns negative. Short position holders pay long position holders. Most exchanges calculate and settle this funding payment every eight hours, resulting in three funding cycles per day.
Where this goes wrong
Holding a long position during persistent positive funding periods steadily drains margin balance even if the spot price remains unchanged.
Venue funding rate comparisons
Funding rates fluctuate across trading platforms based on local order book imbalances and platform fee structures. For high-volume pairs like BTC, funding rates across venues often match closely. For lower-volume pairs, spreads widen across venues.
The table below shows current 8-hour funding rates across four exchange platforms:
| Asset | Bybit 8h Rate | Bitget 8h Rate | MEXC 8h Rate | OKX 8h Rate | 8h Spread | 24h Volume |
|---|---|---|---|---|---|---|
| BTC | +0.0100% | +0.0100% | +0.0100% | +0.0100% | 0.0000% | $6,830,959,900 |
| ETH | +0.0100% | +0.0054% | +0.0100% | +0.0062% | 0.0046% | $5,537,184,740 |
| ZEC | +0.0100% | -0.0002% | +0.0100% | +0.0100% | 0.0102% | $1,861,591,750 |
| SNDK | +0.0000% | +0.0081% | N/A | +0.0000% | 0.0081% | $1,722,152,502 |
| SOXL | +0.0000% | +0.0000% | +0.0000% | +0.0000% | 0.0000% | $1,540,371,014 |
| NVDA | +0.0000% | +0.0090% | N/A | +0.0042% | 0.0090% | $1,043,238,726 |
On BTC, the funding rate across Bybit, Bitget, MEXC, and OKX sits identical at +0.0100% per 8 hours. On ZEC, the spread reaches 0.0102% per 8 hours. A long position on Bitget earns 0.0002% every 8 hours, while the same position on Bybit, MEXC, or OKX costs 0.0100% every 8 hours.
Trading fees and holding arithmetic
Total position cost combines periodic funding rates with venue trading fees. Exchanges publish distinct maker and taker fee default tiers for perpetual contracts.
| Venue | Spot Maker | Spot Taker | Futures Maker | Futures Taker |
|---|---|---|---|---|
| Bitget | 0.100% | 0.100% | 0.020% | 0.030% |
| Bybit | 0.100% | 0.100% | 0.020% | 0.055% |
| MEXC | 0.000% | 0.050% | 0.000% | 0.020% |
| OKX | 0.080% | 0.100% | 0.020% | 0.050% |
Consider holding a long position of $100,000 in ETH for 24 hours (three funding periods) entered with a market order (taker fee) and exited with a limit order (maker fee).
On Bybit, the taker entry fee is 0.055%, which costs $55.00 on a $100,000 position. The maker exit fee is 0.020%, costing $20.00. Over 24 hours, three funding payments at +0.0100% equal 0.0300%, costing $30.00. The total holding and trading cost equals $105.00.
On Bitget, the taker entry fee is 0.030%, costing $30.00. The maker exit fee is 0.020%, costing $20.00. Three funding payments at +0.0054% equal 0.0162%, costing $16.20. The total holding and trading cost equals $66.20.
The total cost difference between Bybit and Bitget for a 24-hour $100,000 ETH position is $38.80.
What to do instead
Calculate entry fees, exit fees, and cumulative funding rates together when evaluating venue efficiency for short to medium holding periods.
What is a perpetual futures contract?
A perpetual futures contract is a derivative contract with no expiration date that uses periodic funding rate payments between traders to track spot market prices.
Who invented the perpetual futures contract?
BitMEX introduced the perpetual futures contract in 2016 to provide cryptocurrency traders with continuous leveraged exposure without contract rollover requirements.
How often are perpetual futures funding fees paid?
Most perpetual futures exchanges settle funding payments every eight hours, resulting in three settlement events per calendar day.
What happens when perpetual funding rates are positive?
When funding rates are positive, long position holders pay funding fees directly to short position holders because the derivative price is trading above spot.
Why do funding rates vary across perpetual venues?
Funding rates vary across platforms because each venue maintains its own order book liquidity, leverage ratios, and imbalance between long and short positions.