> For the complete documentation index, see [llms.txt](https://hyperliquid-co.gitbook.io/wiki/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://hyperliquid-co.gitbook.io/wiki/architecture/hypercore/dex/clearinghouse/funding.md).

# Funding

Funding rates are a critical mechanism in crypto perpetual contracts, ensuring that the perpetual contract price remains closely aligned with the underlying asset's spot price. On Hyperliquid, funding is designed to be **peer-to-peer**, transparent, and reflective of real market conditions.

***

### **Overview of Funding** 📈

* **Peer-to-Peer Payments:** Funding involves direct payments between traders—**longs pay shorts** or vice versa. The platform does not collect any fees from these payments.
* **Hourly Settlements:** Funding is accrued and paid **every hour**, providing consistent adjustments to the market.
* **Base Interest Rate + Premium:** The funding rate is computed as the sum of:
  1. A **fixed interest** **rate** of **0.01% every 8 hours** applies, representing the cost difference between borrowing USD or cryptocurrencies. This corresponds to approximately **0.00125% per hour** and an **APR (Annual Percentage Rate) of \~11.6%**.
  2. A **premium/discount component**, which reflects the difference between the perpetual contract price and the **oracle-derived spot price** of the asset.

***

### **Funding Rate Calculation** 🧮

The funding rate formula is: 

```lua
F = Average Premium Index (P) + clamp(Interest Rate - Premium Index (P), -0.0005, 0.0005)
```

* **Premium Index (P):** Reflects the difference between the **impact price** (calculated using order book depth) and the **oracle price**.
  * **Sampling:** The premium is sampled every **5 seconds** and averaged over the hour
* **Clamp:** Limits extreme differences between the interest rate and the premium index.

#### **Impact Price Calculation:**

```lua
impact_price = max(impact_bid_px - oracle_px, 0) - max(oracle_px - impact_ask_px, 0)
```

Where:

* **impact\_bid\_px / impact\_ask\_px** = Average execution prices to trade a specified notional amount on the bid and ask sides.
* **oracle\_px** = Weighted median of prices submitted by validators, ensuring accuracy and robustness.

***

### **Key Points** 💡

* **Oracle-Driven Calculations:**\
  The **spot oracle price**, derived from a weighted median of validator submissions, is fundamental in calculating the funding rate. Validators’ weights depend on their stake and the liquidity of the CEX they monitor.
* **Funding Impact Notional:**\
  The impact notional used for funding calculations depends on the asset:

  * **20,000 USDC** for BTC and ETH.
  * **6,000 USDC** for all other assets.

  For example, a **50,000 USDC** BTC position pays funding only on the first **20,000 USDC**.
* **Caps on Funding Rates:**\
  Funding on Hyperliquid is capped at **4% per hour**, a much less aggressive cap than many centralized exchanges.
* **Payments Formula:**\
  Funding payments are settled as:

  ```lua
  Payment = position_size × oracle_price × funding_rate
  ```

  The oracle price, not the mark price, is used to calculate the notional value for funding payments.

***

### **Example Calculation** 📝

1. **Scenario:**
   * Interest Rate = 0.01%
   * Impact Bid Price = $10,100
   * Spot Oracle Price = $10,000
   * Position Size = 10 contracts (each representing 1 BTC)
2. **Step 1: Calculate Premium Index (P):**

   ```lua
   Premium = (Impact Bid Price - Spot Oracle Price) / Spot Oracle Price
   Premium = ($10,100 - $10,000) / $10,000
   Premium = 0.01 (1%)
   ```
3. **Step 2: Clamp the Difference:**

   ```lua
   Clamped Difference = min(max(Interest Rate - Premium, -0.05%), 0.05%)
   Clamped Difference = min(max(0.01% - 1%, -0.05%), 0.05%)
   Clamped Difference = -0.05%
   ```
4. **Step 3: Calculate Funding Rate (F):**

   ```lua
   Funding Rate = Premium + Clamped Difference
   Funding Rate = 1% + (-0.05%)
   Funding Rate = 0.95%
   ```
5. **Step 4: Compute Payment:**

   ```lua
   Payment = Position Size × Oracle Price × Funding Rate
   Payment = 10 × $10,000 × 0.0095
   Payment = $950
   ```

***

### **Market Dynamics & Trading Insights** 🔗

**Open Interest** - Total number of contracts held by all market participants—indicates market sentiment and trading activity intensity. There's always a long for every short.

**Premiums & Discounts:**

* **Premium** (perp > spot): Perpetual trading above spot price - longs pay shorts
* **Discount** (perp < spot): Perpetual trading below spot price - shorts pay longs
* The **funding rate** translates these premium/discount observations into actual payment amounts
* Creates **arbitrage opportunities** for yield-seeking traders (cash and carry strategies)

**Advanced Interpretation:**

* **Positive funding** ≠ always bullish sentiment - could indicate spot selling faster than perps
* **Negative funding** ≠ always bearish sentiment - could indicate spot buying leading perps
* **Funding dislocations** between funding rates and price action often signal significant moves
* **OI flushes** tend to happen when OI rises while prices grind down - shows leveraged buying over spot

Funding incentivizes traders to take positions that align the perpetual price with the spot price, maintaining a **stable and fair trading environment** through economic incentives rather than forced settlement.