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What is a perpetual futures contract and how funding costs settle
The finding
Asking what is a perpetual futures contract leads directly to its defining feature: a derivative without an expiration date that uses periodic cash flows between traders to anchor contract prices to spot index values.
BitMEX introduced this financial structure in May 2016.
Across $8.2 billion in 24-hour ETH volume, live 8-hour funding rates currently range from -0.0018% on Bybit to +0.0080% on Bitget.
What is a perpetual futures contract
Traditional futures contracts expire on specified calendar dates. At expiration, positions settle against the underlying spot price or undergo physical delivery. A perpetual futures contract removes expiration entirely, allowing traders to hold positions indefinitely.
Economist Robert Shiller proposed non-expiring cash-settled contracts in 1992. The market structure remained theoretical until crypto exchange BitMEX launched the first swap-based perpetual contract in May 2016.
Because no settlement date forces convergence with spot prices, the perpetual contract relies on an automated exchange mechanism called funding. When derivative prices trade above the spot index price, long position holders pay short position holders. When derivative prices trade below spot, short position holders pay long position holders.
Worth knowing
Funding payments transfer cash directly between trader accounts every eight hours without entering exchange balance sheets.
How funding rates keep perpetual contracts pegged
Funding rates balance buyers and sellers across exchanges. Live market data highlights significant pricing spreads for identical underlying assets across venues.
For Ethereum (ETH), 24-hour trading volume reached $8,223,944,532. On Bybit, the 8-hour funding rate is -0.0018%, making Bybit the cheapest venue to hold a long position because shorts pay longs. On Bitget, the 8-hour rate is +0.0080%, meaning longs pay shorts.
This creates a 0.0098 percentage point spread per 8 hours. On a $100,000 long ETH position, a trader on Bitget pays $8.00 every 8 hours ($24.00 per day). On Bybit, a long position receives $1.80 every 8 hours ($5.40 per day). Over a 30-day period, holding the position on Bitget costs $720.00 in funding, while holding on Bybit accrues $162.00, creating an $882.00 holding cost gap.
| Asset | 24h Volume | Lowest 8h Rate (Long) | Highest 8h Rate (Long) | 8h Spread |
|---|---|---|---|---|
| ETH | $8,223,944,532 | -0.0018% (Bybit) | +0.0080% (Bitget) | 0.0098% |
| BTC | $6,390,936,094 | +0.0006% (Bybit) | +0.0037% (MEXC) | 0.0031% |
| ZEC | $1,463,419,578 | -0.0102% (Bitget) | +0.0100% (Bybit) | 0.0202% |
| SNDK | $1,032,921,954 | +0.0000% (Bybit) | +0.0122% (Bitget) | 0.0122% |
| SOL | $1,014,229,013 | +0.0016% (Bybit) | +0.0100% (Bitget) | 0.0084% |
| XAU | $744,886,764 | +0.0123% (Bitget) | +0.0226% (MEXC) | 0.0103% |
Where this goes wrong
Positive funding rates drain long margin balances continuously during extended market uptrends.
Trading fees and holding costs across venues
Holding costs include both ongoing funding rates and upfront execution fees. Standard fee schedules establish default maker and taker rates for futures and spot execution.
| Exchange | Futures Maker | Futures Taker | Spot Maker | Spot Taker |
|---|---|---|---|---|
| Bitget | 0.020% | 0.030% | 0.100% | 0.100% |
| Bybit | 0.020% | 0.055% | 0.100% | 0.100% |
| MEXC | 0.000% | 0.020% | 0.000% | 0.050% |
| OKX | 0.020% | 0.050% | 0.080% | 0.100% |
Consider entering a $50,000 SOL position as a taker and holding for 24 hours across three funding periods. On Bybit, the taker entry fee is $27.50 (0.055%). The SOL 8-hour funding rate is +0.0016%, totaling +0.0048% ($2.40) over 24 hours. Total day-one cost equals $29.90.
On Bitget, the taker entry fee is $15.00 (0.030%). However, Bitget's SOL 8-hour funding rate is +0.0100%, totaling +0.0300% ($15.00) over 24 hours. Total day-one cost equals $30.00. Beyond day one, Bitget becomes significantly more expensive despite lower initial trading fees.
What to do instead
Calculate combined trading fees and multi-day funding projections before choosing an execution venue for swing trades.
Margin requirements and liquidation risk
Perpetual contracts rely on margin to maintain leveraged exposure. Initial margin opens the trade, while maintenance margin sets the minimum balance required to avoid liquidation.
On a $100,000 BTC position at 20x leverage, the initial margin requirement is $5,000. If the venue requires a 0.5% maintenance margin ($500), an adverse price decline of 4.5% ($4,500 loss) reduces equity to the threshold, triggering automatic liquidation.
Funding costs accelerate liquidation distance. If positive funding consumes $30.00 daily from margin, holding the position for 10 days drains $300.00 in equity. That reduction reduces the liquidation buffer from 4.5% down to 4.2%, bringing the liquidation price closer without any underlying market movement.
What is a perpetual futures contract?
A perpetual futures contract is a crypto derivative contract without an expiration date. It uses regular funding payments between long and short positions to force contract prices to track the underlying spot asset index price.
How often do perpetual contracts settle funding?
Perpetual contracts settle funding every eight hours on most exchanges at 00:00, 08:00, and 16:00 UTC. Some derivative platforms utilize one-hour or continuous funding intervals during volatile market conditions.
What happens if a margin balance cannot cover funding?
Funding payments are deducted directly from account margin balances. If funding deductions pull the account balance below maintenance margin requirements, the liquidation engine automatically closes the position.
Which exchange offers the lowest funding rate for Ethereum?
Bybit currently offers the lowest long holding rate for ETH at -0.0018% per eight hours, meaning short holders pay long holders. Bitget maintains the highest long rate among listed venues at +0.0080% per eight hours.