In the cryptocurrency futures trading, many investors only pay attention to the fluctuations in coin prices, while ignoring the funding rate, which is an 'invisible cost.' In reality, the funding rate is like 'boiling a frog in warm water,' gradually eroding the margin without the investor's awareness, becoming the last straw that breaks the camel's back. Many investors shift from profit to liquidation in an instant precisely because they do not take the impact of the funding rate seriously, ultimately being dragged into the abyss by this unseen cost.
The funding rate is a unique mechanism of perpetual contracts used to balance the positions of bulls and bears, ensuring that the contract price remains linked to the spot price. It is calculated based on the positions of both parties; when the long positions exceed the short positions, the longs need to pay the funding fee to the shorts; when the short positions exceed the long positions, the shorts need to pay the funding fee to the longs. The funding rate is usually calculated hourly, with a rate range of -0.1% to 0.1%. While this may seem low, the impact on the margin over the long term cannot be ignored. For example, with an hourly funding rate of 0.05% in a certain exchange, an investor holding a leveraged position of 10 times with a margin of 100,000 yuan needs to pay a funding fee of 120 yuan for one day, which amounts to 3,600 yuan in a month, accounting for 3.6% of the margin.
In high-leverage trading, the impact of funding rates is even more pronounced. High leverage means a very low margin ratio, and funding rates erode margins more quickly. For example, if an investor uses a margin of 10,000 yuan for 100x leveraged trading, the position value is 1,000,000 yuan. If the funding rate is 0.05%/hour, the daily funding cost reaches 1,200 yuan, equivalent to 12% of the margin. If the market is in a sideways trend, with no significant price fluctuations, the funding rate alone can consume the entire margin in 8 days, leading to forced liquidation. Some investors have used 100x leverage trading in Bitcoin perpetual contracts; due to market fluctuations and the price not showing expected movements, they were ultimately forced to liquidate their positions due to continuous erosion of their margin by funding rates, resulting in their entire 10,000 yuan principal going to zero.
The fluctuations in funding rates also exacerbate market uncertainty. When the market experiences a one-sided trend, the gap in positions between long and short sides will widen, and funding rates can soar sharply. For example, during a Bitcoin bull market, long positions surge, and funding rates may exceed 0.1%/hour, with daily funding costs accounting for 2.4% of the margin. At this point, investors holding short positions face significant funding pressures, either needing to add margin or being forced to close their positions, further driving up cryptocurrency prices; while investors holding long positions, although able to gain from funding rate returns, also face the risk of market reversals. In a certain Bitcoin price increase in 2025, funding rates once surged to 0.15%/hour, forcing many short investors to close their positions due to unbearable funding pressure, triggering a 'short squeeze' market, with prices rising by 15% in a day, while many chasing high long investors faced liquidation during subsequent pullbacks.
Ignoring the hidden costs of funding rates is a significant reason for many investors' failures in contract trading. Ordinary investors, when participating in perpetual contract trading, often focus only on the fluctuations in cryptocurrency prices, without realizing that funding rates continuously erode their margins. When formulating trading strategies, one must consider not only the risks of market volatility but also incorporate funding rates into cost calculations, reasonably selecting holding times and leverage multiples. For short-term traders, it is advisable to minimize holding times to avoid the accumulation of funding rates; for long-term traders, it is necessary to choose cryptocurrencies with relatively stable funding rates and set reasonable stop-loss and take-profit points. The difference between becoming rich and facing liquidation may lie in this invisible funding rate. Only by fully recognizing the harm of hidden costs can rational decisions be made in contract trading to avoid being ruthlessly harvested by the market.
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