What does it mean if the funding rate is positive on Kraken?

A positive funding rate on Kraken means longs pay shorts every 8 hours, signaling bullish sentiment but also adding holding costs for long-position traders.

Aug 09, 2025 at 04:56 pm

Understanding Funding Rates in Cryptocurrency Derivatives

Funding rates are a critical mechanism in perpetual futures contracts, which are widely traded on platforms like Kraken. Unlike traditional futures contracts that have an expiration date, perpetual contracts do not expire, so funding rates help align the contract price with the spot market price. This alignment prevents significant divergence between the two. The funding rate is essentially a periodic payment exchanged between long and short position holders in a perpetual swap market. These payments occur at regular intervals—typically every 8 hours on Kraken—and are calculated based on the difference between the perpetual contract price and the underlying asset’s spot price.

When the funding rate is positive, it indicates that long position holders pay short position holders. This occurs when the perpetual contract trades at a premium to the spot price. The premium suggests strong bullish sentiment, as traders are willing to pay more for the futures contract than the actual market value of the asset. Kraken uses this mechanism to incentivize traders to take short positions, which helps bring the contract price back in line with the spot price.

How Kraken Calculates and Applies Funding Rates

Kraken computes the funding rate using a formula that includes the premium index and the interest rate component. The premium index reflects the difference between the perpetual contract price and the spot price, adjusted for basis. The interest rate component is usually minimal or zero for most cryptocurrency pairs, as crypto assets typically don’t accrue interest like traditional financial instruments.

The formula used is:

Funding Rate = Premium Index + clamp(Interest Rate - Premium Index, 0.05%, -0.05%)

Kraken then applies the funding rate every 8 hours. If the resulting rate is positive, longs pay shorts. The payment is automatically deducted from or added to the trader’s margin balance. For example, if the funding rate is set at 0.01%, a trader holding a $10,000 long position will pay $1 to short position holders during that funding interval. This process is transparent and visible in the funding history section of the Kraken Futures dashboard.

Implications of a Positive Funding Rate for Traders

A positive funding rate signals that demand for long positions exceeds that for short positions in a given market. This often reflects bullish market sentiment. Traders holding longs must pay shorts, which can act as a cost of carrying a long position over time. For traders considering opening or maintaining a long, this cost must be factored into their strategy.

Conversely, traders with short positions benefit from a positive funding rate, as they receive payments. This can serve as a form of passive income for bearish traders, even if the price remains flat. However, they still face price risk—if the market rises sharply, gains from funding may be offset by losses in position value.

It's important to note that a positive funding rate does not guarantee price direction. While it reflects current sentiment, it doesn't predict future price movements. Traders should analyze funding rates alongside other indicators such as open interest, volume, and order book depth.

How to Check the Funding Rate on Kraken

To monitor the current funding rate on Kraken, follow these steps:

• Log in to your Kraken account and navigate to the Kraken Futures platform.
• Select the specific perpetual contract you're interested in, such as BTC/USD or ETH/USD.
• Look for the funding rate indicator, typically displayed near the price chart.
• Click on the funding history tab to view past rates and upcoming payment times.
• Enable notifications if available, to receive alerts before funding intervals occur.

The funding rate is updated in real time, and Kraken displays both the current rate and the next expected funding time. This information is crucial for active traders who need to anticipate costs or income from holding positions across funding periods.

Strategies Around Positive Funding Rates

Traders can use positive funding rates to inform various strategies. For example:

• Funding arbitrage: Some traders open a long position on a perpetual contract with a negative funding rate and short the same asset on a different exchange or market where the funding rate is positive, attempting to capture the spread.
• Shorting during high positive funding: When the funding rate is significantly positive, it may indicate over-leveraged longs. Some traders interpret this as a potential reversal signal and open short positions to collect funding while betting on a price correction.
• Avoiding longs during high funding: Traders may choose to delay entering long positions when funding rates are high, to avoid recurring costs.
• Hedging spot holdings: A trader holding BTC in their wallet might open a short position on Kraken Futures when the funding rate is positive, effectively earning yield while remaining neutral to price movements.

Each of these strategies requires careful risk management, as funding rates can change rapidly based on market conditions.

Common Misconceptions About Funding Rates

One common misunderstanding is that a positive funding rate means the price will definitely go up. While it reflects bullish positioning, it does not confirm price continuation. In fact, extremely high positive funding can precede price corrections, as over-extended longs may be liquidated.

Another misconception is that funding payments are optional or manually processed. On Kraken, they are automatically applied to all open positions at the designated interval. Traders cannot opt out, and the system handles the transfer seamlessly.

Some traders also believe that funding rates are set by the exchange arbitrarily. In reality, Kraken uses a transparent, formula-driven mechanism based on market data. The rate is derived from observable prices and is not influenced by internal decisions.

Frequently Asked Questions

Q: Does a positive funding rate mean I will lose money if I hold a long position?

A: Not necessarily. While you will pay funding fees during each interval, your overall profitability depends on price movement. If the asset price increases significantly, gains may outweigh funding costs.

Q: Can the funding rate change between intervals?

A: Yes. The funding rate is recalculated frequently and can change before the next payment. The rate displayed at any moment is an estimate of what will be applied at the next 8-hour mark.

Q: Are funding rates the same across all perpetual contracts on Kraken?

A: No. Each perpetual contract (e.g., BTC/USD, ETH/USD) has its own funding rate, determined by its individual market conditions.

Q: What happens if I close my position before the funding interval?

A: If you close your position before the funding time, you will not be charged or receive any funding payment for that interval. Only traders with open positions at the exact funding timestamp are affected.