How Funding Rates Work on Arcus Equity Perpetuals

A futures contract has an expiry date on it, and that date is what keeps its price tied to the underlying stock. A perpetual (a.k.a "perp") does not. That one difference is the whole reason funding exists.

An Equity Perpetual never expires. That is what makes it useful: a position can be held for an hour or a year without rolling contracts or managing a calendar. But without a settlement date, nothing forces its price back toward the stock it tracks. Left alone, the two could drift apart and stay apart.

A funding rate does that job instead. This post covers what that payment is, how the rate is set, what happens when the underlying market is closed, and what you see on Arcus.

What Funding Actually Is

Funding is money exchanged between traders at regular intervals. When a funding interval settles, every open position either pays or receives, and the total paid by one side equals the total received by the other.

The direction depends on where the perp is trading relative to the underlying asset.

• When the perp trades above the price of underlying equity, longs pay shorts. Being long is the crowded side, so being long costs something each interval.

  
  

• When the perp trades below the price of underlying equity, shorts pay longs. Now, being short is the crowded side, and it costs something to stay there.

  
  

The size of the payment scales with the gap. A perp trading a hair above the underlying equity produces a small funding payment; one trading well above it produces a larger one. Either way, the crowded side has a standing reason to close positions or pay the other side, and that pressure is what closes the gap.

How the Rate Is Set During Market Hours

While the underlying equity is trading, the funding rate is built from two parts.

The first is the premium. Throughout the session, the perp's price is compared against the live price of the underlying and the difference is sampled continuously. That running gap is the premium, and it can be positive or negative depending on which way the perp is leaning.

The second is a base rate. Holding a leveraged position has a cost of carry, in the same way that borrowing to hold an equity has a cost. The base rate reflects that, and it applies whether or not the perp is trading away from the equity.

Premium plus base rate sets the rate for the interval. On Arcus, that interval is one hour: each hour, the rate is applied to the notional value of every open position and settled in USD between longs and shorts.

There is nothing to schedule or calculate on your side. The rate updates with the market and funding settles on the hour.

What Changes When the Market Is Closed

An equity has no live price when its exchange is shut. Overnight, over the weekend and on holidays, there is nothing fresh for the premium to measure against.

If funding kept sampling anyway, it would be measuring the perp against a stale reference and reacting to whatever thin prints happened to land. A position held over a quiet Saturday could see its funding rate swing for reasons that have nothing to do with the underlying equity. That would make holding a perp through the weekend a guessing game, with the rate moving for reasons unrelated to the equity itself.

So the funding rate changes regime when the underlying closes. The premium switches off, because there is no live price to sample, and the base rate component becomes the whole rate, held at a fixed level until the exchange reopens. Settlement continues hourly as normal.

When the underlying market reopens, the live reference returns, the premium switches back on, and floating the funding rate resumes.

Put side by side:

Reading Funding Rates as a Trader

Three practical points follow from the mechanics.

A funding rate is a cost of holding, not a cost of trading. It is what you pay or receive for keeping the position open across an hourly boundary. A position opened and closed inside the same hour never touches it.

The sign tells you where the crowd is. Persistently positive funding means the perp has been trading above the underlying equity and longs have been paying, which is a direct read on positioning that an equity chart does not give you. Persistently negative funding means the reverse.

Weekends are predictable by design. Because the rate freezes to the baseline when the underlying closes, the cost of carrying a perp from Friday close to Monday open is knowable on Friday afternoon.

Where Arcus Sits

Every Equity Perpetual market page on Arcus shows the current funding rate and the countdown to the next hourly settlement. Each payment or receipt appears in your position and transaction history as it lands, so the cost of holding a position is always visible, not inferred.

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Arcus is a blockchain-based smart contract protocol that permits self-custodial peer-to-peer trading of Stock Tokens, cryptoassets and perpetual futures. Arcus is not a regulated financial services provider, and it is not available in the U.S., Canada, United Kingdom and other restricted jurisdictions.

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