Funding: This is a mechanism that allows traders to earn even in sideways markets.

Many traders are already applying this phenomenon in practice, but beginners often are unaware of the existence of such an instrument. On cryptocurrency futures exchanges, there is a mechanism that keeps the contract prices close to the spot price of the asset. This is not just a platform fee, but a direct exchange of funds between market participants.

What is funding and how does it work in futures

The mechanism is applied at set intervals, usually every eight hours. When the market is overheated on the upside, long position holders pay funds to those who opened short positions. The opposite situation occurs when downward pressure is present: in this case, short positions finance long positions.

The amount of payments directly depends on the degree of imbalance: the more the market is skewed in one direction, the higher the percentage. This process operates fully automatically — position holders do not need to close their positions for the payments to occur.

Two profit strategies using funding

The first option is simple. Traders use it for passive income: if the percentage is positive, it’s more profitable to take a short position; if negative — a long position. The income can range from 0.01% to 0.1% per eight-hour cycle, which, during calm market movements, translates to 10–30% annually.

The second approach is called funding arbitrage and is considered a more sophisticated tactic. It involves opening two opposite positions simultaneously: a long on the spot market and a short on the futures contract. This way, price fluctuations no longer play a decisive role — profit comes solely from the difference in interest payments. When using minimal leverage, this method significantly reduces exposure to risk.

Risk management when trading on funding

Although the mechanism may seem attractive for earning, traders must understand it from a risk management perspective. Even a passive strategy requires discipline and the avoidance of excessive expectations. Key rules: do not use excessive leverage, regularly monitor your account balance, and be prepared for sharp changes in market dynamics.

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Funding remains one of the few methods allowing traders to generate consistent income in a flat market, provided they follow a clear strategy and do not succumb to impulsive decisions.