There are two components to the Funding Rate: the Interest Rate and the Premium. The Premium is the reason why the price of the perpetual contract will converge with the price of the underlying asset.

Funding payments occur every 8 hours at 00:00 UTC; 08:00 UTC and 16:00 UTC for all Binance Futures perpetual contracts. Traders are only liable for funding payments in either direction if they have open positions at the pre-specified funding times. If traders do not have a position, they are not liable for any funding. If you close your position prior to the funding time, you will not pay or receive any funding.

Funding Amount = Nominal Value of Positions × Funding Rate

The funding rate is primarily used to force convergence of prices between the perpetual contract and the underlying asset.Unlike traditional futures, perpetual contracts have no expiration date. Thus, traders can hold positions to perpetuity unless he gets liquidated. As a result, trading perpetual contracts are very similar to spot trading pairs.As such, crypto exchanges created a mechanism to ensure that perpetual contract prices correspond to the index. This is known as Funding Rate.

Funding rates are periodic payments made to either long or short traders, calculated based on the difference between the perpetual contract prices and spot prices. When the market is bullish, the funding rate is positive and tends to rise over time. In these situations, traders who are long on a perpetual contract will pay a funding fee to traders on the opposing side. Conversely, the funding rate will be negative when the market is bearish, where traders who are short on a perpetual contract will pay a funding fee to long traders.