What is funding on a perp?
Funding is the small periodic payment between longs and shorts that keeps a perp's price glued to the real asset's price. When the perp trades above the asset, longs pay shorts; below, shorts pay longs. It's the invisible cost, or income, of holding a perp, and your CEO counts it in every position it takes.
Why perps need it
A normal future converges to the real price at expiry. A perp never expires, so something else has to keep it honest. That something is funding: a recurring payment that makes the crowded side of the market pay the other side, nudging the perp price back toward the asset it tracks.
The mechanics in one breath
- Perp trading above the asset, too many longs, longs pay shorts.
- Perp trading below Too many shorts, shorts pay longs.
- The payment is small per interval, but it compounds over days of holding, sometimes into a real cost, sometimes into real income for the unpopular side.
Why your CEO cares
Funding changes what a position truly earns. A long that drifts sideways while paying funding is quietly losing; a short collecting funding gets paid to wait. When your CEO explains a perp position, funding is part of the arithmetic, one more reason the edge has to be nameable before the bet is placed.