Annualized funding cost: what a funding rate means per year
Annualised (or annualized) funding cost is the per-settlement funding rate
multiplied by the number of settlements in a year — rate × (24 ÷ N) × 365
for a venue that settles every N hours — which is why one quoted rate can mean
very different yearly costs depending on how often it is charged.
This page is for anyone comparing funding across venues or instruments, or trying to decide whether a rate is large. It assumes you already know how a single payment is computed; if not, start with how to calculate funding payments. By the end you will be able to put any two funding quotes on the same footing, read them against your margin, and avoid the three common ways the annualised figure misleads.
Why the raw rate is not comparable
Funding is quoted per settlement. A per-settlement rate is a rate per unit of time, and the unit is the interval — so two quotes with different intervals are in different units, the way a monthly and a yearly interest rate are.
Settlement intervals differ between venues and may differ between instruments on the same venue. That is the reason to annualise, or at least normalise: it is the only way to see which of two positions is more expensive to hold.
The formula
settlements per year = (24 ÷ N) × 365
annualised rate = per-settlement rate × settlements per year
per-hour equivalent = per-settlement rate ÷ N
per-day equivalent = per-settlement rate × (24 ÷ N)N is your venue’s settlement interval in hours. The
funding rate calculator does this with
“payments per day” as the input, and shows the annualised figure directly.
One rate, three intervals
The intervals below are illustrative, chosen to show the arithmetic; they are not a claim about any venue. The same 0.01% per settlement:
| Illustrative interval | Settlements per year | Annualised |
|---|---|---|
| Every 8 hours | 1,095 | 10.95% |
| Every 4 hours | 2,190 | 21.90% |
| Every 1 hour | 8,760 | 87.60% |
An eightfold difference from the interval alone. Across a range of illustrative rates:
| Rate per settlement | Every 8h | Every 4h | Every 1h |
|---|---|---|---|
| 0.005% | 5.48% | 10.95% | 43.80% |
| 0.01% | 10.95% | 21.90% | 87.60% |
| 0.03% | 32.85% | 65.70% | 262.80% |
| 0.05% | 54.75% | 109.50% | 438.00% |
| 0.10% | 109.50% | 219.00% | 876.00% |
How high or low a venue’s rate can go is governed by its own formula and any caps it applies. The venue calculator pages cover each: Binance futures, Bybit, OKX and Hyperliquid.
Comparing two quotes
A hypothetical example. Venue A shows 0.01% on an 8-hour interval. Venue B shows 0.004% on a 1-hour interval. B’s number is smaller.
| Venue A | Venue B | |
|---|---|---|
| Quoted rate | 0.01% per 8h | 0.004% per 1h |
| Per day | 0.03% | 0.096% |
| Annualised | 10.95% | 35.04% |
The smaller-looking quote is 3.2 times the cost. Normalise to per hour or per day before comparing anything, and compare over the same holding period.
Simple, not compounded
Funding payments do not grow the position — they are paid out of, or into, margin, while the notional they are charged on stays whatever your position is. So the correct annualisation for a fixed position is simple multiplication, as above.
Compounding the rate overstates it. 0.01% per 8 hours compounded over a year is
11.57% rather than 10.95%; 0.01% per hour compounded is 140.1% rather than
87.6%. If you see an annualised funding figure that is noticeably higher than
rate × settlements, check whether it has been compounded.
Against your margin, not just notional
The annualised rate is a percentage of notional. Your margin is notional divided by leverage, so relative to margin the cost scales with leverage — the same reason fees bite harder at high leverage, covered in leverage is not risk.
At an illustrative 10.95% annualised on notional:
| Leverage | Annualised cost relative to margin |
|---|---|
| 1× | 10.95% |
| 3× | 32.85% |
| 5× | 54.75% |
| 10× | 109.50% |
| 20× | 219.00% |
At 10× in this example, a year of funding at a constant rate would exceed the margin posted. Well before that point, paid funding has been moving the liquidation price toward entry, since it is deducted from margin each settlement. The liquidation price calculator does not model that drift.
Three ways the annualised number misleads
It extrapolates one print. Rates reset every settlement. Annualising the current rate assumes it holds for a year, which it will not. Using the six illustrative settlements from the funding payments ledger, the average rate was 0.008%, which annualises to 8.76% at an 8-hour interval; the highest single print, 0.015%, annualises to 16.43%. Annualising the peak nearly doubles the figure. An average of realised rates over your holding horizon is a better input than any single print.
It is a unit, not a bill. What you pay is the rate times the settlements you actually hold through. On 30,000 USD of notional at an illustrative 0.01% per 8 hours:
| Held for | Settlements | Cost | % of notional |
|---|---|---|---|
| 1 day | 3 | 9 USD | 0.03% |
| 7 days | 21 | 63 USD | 0.21% |
| 30 days | 90 | 270 USD | 0.90% |
| 90 days | 270 | 810 USD | 2.70% |
A large annualised figure matters little for a position held hours, and a moderate one matters a lot for a position held for months. The annual scale is most useful set against other annual costs, such as fee drag over a year.
Received funding is not yield. A rate that pays your side — positive if you are short, negative if you are long — annualises to something that looks like interest. It is compensation for holding directional exposure in a market that is already positioned one way, and that positioning can unwind faster than the funding accrues — see perpetuals vs dated futures.
Funding vs basis on a dated future
The adjacent comparison is a dated future, where the carry is fixed at entry in the basis rather than accruing. Its annualised form:
annualised basis = (future price ÷ spot − 1) × (365 ÷ days to expiry)Illustrative: a future at 61,000 against spot at 60,000 with 90 days to expiry annualises to 6.76%. That number is known when you trade. The perpetual’s annualised funding is an estimate from rates that have not happened yet. Putting the two side by side is a fair comparison of carry only if you treat the funding side as a range, not a point.
FAQ
How do I annualize a funding rate?
Multiply the per-settlement rate by the number of settlements in a year, which
is (24 ÷ N) × 365 for a venue settling every N hours. For example, an
illustrative 0.01% every 8 hours is 0.01% × 1,095 = 10.95% a year. Use simple
multiplication rather than compounding, because funding does not grow the
position it is charged on.
Why is the same funding rate more expensive on one exchange than another?
Because funding rates are quoted per settlement and settlement intervals differ. A rate charged every hour is charged eight times as often as the same rate charged every eight hours, so it costs eight times as much per year. Normalise both quotes to per hour or per day before comparing.
Is annualized funding a forecast of what I will pay?
No. It projects the current rate forward as if it never changed, but the rate is recalculated every settlement. Use it to compare quotes and gauge scale, and use an average of realised rates over your intended holding period for any estimate of actual cost.
How does leverage affect funding cost?
Funding is charged on notional, so the dollar cost is the same at any leverage for the same position size. Relative to the margin posted it scales with leverage: an annualised 10.95% on notional is about 110% of margin at 10×, and paid funding reduces margin over time, moving liquidation closer.