Funding rates are periodic payments to long or short traders based on the difference between the perpetual contract market and the spot price. Funding rates make the perpetual futures contract price close to the index price. All cryptocurrency derivatives exchanges use funding rates for perpetual contracts. When the funding rate is positive, the perpetual contract’s price is greater than the spot price. In such a scenario, traders who are positioned long make payments to short traders. When the funding rate is negative, perpetual prices have fallen below the spot price, and traders who are positioned short make payments to long traders.