# Funding Rate
The funding rate is a periodic payment exchanged between traders holding long and short positions in perpetual contracts. Its primary purpose is to keep the perpetual contract price (mark price) closely aligned with the underlying spot index price.
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## What It Means
* If the funding rate is **positive**: traders holding long positions pay traders holding short positions.
* If the funding rate is **negative**: traders holding short positions pay traders holding long positions.
This mechanism ensures that if the price of the perpetual diverges from spot (due to demand imbalance), there is a financial incentive for traders to take the opposite side, pulling prices back in line.
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## How It Works on Hyperliquid
* Funding is calculated and settled every hour. This is more frequent than many other platforms, helping to maintain tighter alignment with the index price.
* Funding is purely peer-to-peer — no fees are collected by the platform.
* You only pay or receive funding if you're holding a position at the funding timestamp.
* The amount you pay/receive is proportional to your position size and the prevailing funding rate.
### Funding Rate Components
The total funding rate is composed of two parts:
**Interest Rate Component**\
Fixed at 0.01% every 8 hours (0.00125% per hour, approximately 11.6% APR). This component is always paid from longs to shorts and represents the cost difference between borrowing USD and holding the underlying crypto asset.
**Premium Component**\
Varies based on the difference between the perpetual contract price and the spot oracle price. When the perpetual price is above the oracle price, the premium is positive (longs pay shorts). When the perpetual price is below the oracle price, the premium is negative (shorts pay longs).
The total funding rate for each interval is calculated as:
> **Funding Rate = Interest Rate + Premium**
Funding is added to or subtracted from your balance at each hourly funding interval.
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## Funding Rate History
You can view historical funding rates for each asset in the BasedApp terminal. Reviewing past funding trends helps inform position decisions, identify recurring patterns, and anticipate potential costs or earnings from holding positions.
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## Strategies Around Funding
* Traders can earn funding by taking the side that receives payments. For example, shorting when the funding rate is highly positive allows you to collect recurring payments from long holders.
* High funding rates can signal over-leveraged markets and potential price reversals, making them a useful sentiment indicator.
* Funding costs should be factored into any position held for extended periods, as they can significantly impact overall profitability.
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## Why It Matters
Funding rate directly affects your profit and loss (PnL) over time. Even if price doesn't move, a high funding rate can eat into returns (if you're paying), or enhance gains (if you're receiving).
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