Perpetual futures, a staple of crypto derivatives markets, are quietly siphoning about 10% a year from traders who hold long positions. The cost comes from the funding rate mechanism, which periodically shifts payments between longs and shorts to keep the contract price tethered to the underlying spot market.
How the funding rate works
Unlike traditional futures, perpetual contracts never expire. To prevent the contract price from drifting too far from the spot price, exchanges impose a funding rate — typically every eight hours. When more traders are long than short, longs pay shorts a small percentage of their position size. When shorts dominate, the flow reverses. Over time, the net effect for a persistent long holder is a steady drain.
Analysis of historical funding data suggests that the average annualized cost for a long position can reach roughly 10%. That means a trader who holds a perpetual long for a full year loses a tenth of their position to funding payments, regardless of whether the underlying asset rises or falls.
Why the drain goes unnoticed
The cost is subtle because it is deducted incrementally — a fraction of a percent every eight hours. Many traders focus on price charts and ignore the slow bleed. Exchanges display the current funding rate, but few users calculate the cumulative impact over months. The 10% figure is an average; actual costs vary with market conditions and the balance of long and short interest.
For short-term speculators, the funding cost may be negligible. But for anyone trying to hold a perpetual future as a proxy for owning the underlying asset, the annual drain can significantly erode returns. A trader who would have made 20% on a spot position might see only 10% after funding costs. The effect is even more pronounced in markets where funding rates stay positive for extended periods.
The finding underscores a key difference between perpetual futures and spot holdings. While perpetuals offer leverage and ease of trading, they carry a hidden expense that can compound over time. Traders who plan to hold positions for weeks or months may be better off using traditional futures with fixed expiry dates, or simply buying the spot asset.
Regulators and trading platforms have not publicly addressed the cumulative cost of funding rates. The 10% drain remains a quiet feature of the market, known to experienced traders but often overlooked by newcomers.
