Understanding Bybit funding rates: How do they affect your trades?

What Are Funding Rates on Bybit?

1. Funding rates are periodic payments exchanged between long and short traders on Bybit’s perpetual contracts.

2. They serve to anchor the perpetual contract price to the underlying spot index, preventing excessive divergence.

3. The rate is calculated every eight hours—at 00:00, 08:00, and 16:00 UTC—based on the premium index and interest rate differential.

4. A positive funding rate means longs pay shorts; a negative rate means shorts pay longs.

5. Bybit publishes the next funding rate in real time on its trading interface, allowing users to anticipate upcoming cash flows.

How Funding Rates Are Calculated

1. The formula used is: Funding Rate = Interest Rate + Premium Index × (1 / Funding Interval).

2. The base interest rate is set at 0.03% per day, or 0.01% per eight-hour interval, unless adjusted by Bybit during extreme market conditions.

3. The premium index reflects the difference between the mid-price of the perpetual contract and the spot index, normalized by the spot index.

4. Bybit applies a clamp mechanism to cap the absolute value of the funding rate at 0.75% per interval to prevent excessive volatility.

5. Users can view historical funding data via Bybit’s API or the Funding History tab on the derivatives dashboard.

Impact on Open Positions

1. Funding payments are applied directly to the user’s wallet balance at each settlement time, increasing or decreasing equity instantly.

2. For leveraged positions, even small funding rates compound significantly when held over multiple cycles—especially at high leverage ratios like 50x or 100x.

3. Traders holding positions across multiple funding intervals may see their effective entry price drift due to cumulative funding accruals.

4. Negative funding environments—where shorts pay longs—can artificially inflate long position profitability without underlying price movement.

5. Funding costs are not fees—they are transfers between counterparties and directly influence net PnL independent of market direction.

Funding Arbitrage and Market Behavior

1. Persistent positive funding often signals bullish sentiment and crowded long positioning, which may precede sharp reversals.

2. Sustained negative funding can reflect bearish dominance or macro-driven short squeezes, especially during volatile news events.

3. Arbitrageurs monitor funding skew across exchanges—Bybit versus Binance or OKX—to identify cross-platform mispricings and deploy neutral strategies.

4. High funding rates correlate with elevated open interest and liquidation heatmaps, offering contextual clues about market structure.

5. Funding rate divergence from spot volatility is a recognized signal for potential mean-reversion setups in BTC and ETH perpetuals.

Frequently Asked Questions

Q: Do I pay funding if my position is closed before the settlement timestamp?A: No. Funding is only applied to positions open at the exact moment of settlement—00:00, 08:00, or 16:00 UTC.

Q: Can funding rates go negative indefinitely?A: Yes. Extended periods of negative funding occur during strong bearish momentum or when short-side liquidity dominates order books.

Q: Is funding taxable as income?A: Tax treatment varies by jurisdiction. In many regions, funding receipts or payments are treated as capital gains or ordinary income depending on trader classification and local crypto tax guidelines.

Q: Does Bybit charge a fee on top of funding transfers?A: No. Funding payments are peer-to-peer transfers with no platform markup or commission added by Bybit.