Free lesson · Trading different assets

Crypto perpetuals: funding, mark prices and liquidation

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First determine whether the contract is linear or inverse and which asset serves as collateral and settlement currency. The example here is a linear contract with quantity in underlying units and P&L in quote currency. Inverse contracts require different arithmetic.

Funding transfers value between sides according to the contract’s rate, timing and notional convention. A positive rate often means longs pay shorts, but verify the rule. Rates can change and future funding is not known. Financing a spot hedge adds its own cash and custody costs.

Last trade, reference index and mark price can differ. The venue may use a mark and maintenance-margin schedule for liquidation rather than the price on a simple chart. Cross-margin pools collateral across positions; isolated margin allocates it differently. Neither is a universal loss guarantee.

A cash-and-carry study might combine spot with a short perpetual, but funding, basis changes, hedge mismatch, borrow, exchange risk and forced liquidation remain. Test the full paired ledger under adverse price and funding paths. A high quoted funding rate is an input to investigate, not an annualized return promise.

Apply it in a strategy

• Record linear/inverse payoff, collateral currency, funding schedule and liquidation rules.
• Reconcile funding and realized/unrealized P&L separately.
• Stress basis, collateral, venue access and changing funding before assessing carry.

Research deliverable

Show long and short funding signs and explain why a delta hedge does not remove collateral risk.

Funding mechanics & recent research · reviewed 12 September 2026

Coinbase International Exchange’s official funding explanation verifies the positive-rate longs-pay convention for that product family. Other venues and contract wrappers require their own specification. The lesson uses hypothetical rates and does not reproduce a venue’s full margin engine.

Further reading: Coinbase International Exchange · Funding rate ↗

Le’s Funding-Aware Optimal Market Making for Perpetual DEXs is a May 2026 preprint. Abstract and metadata reviewed: it uses Hyperliquid ETH, BTC and SOL funding calibration and holdout simulations, with asset-dependent comparisons against inventory-control baselines. Exact data endpoints, fill proxies and numerical results were not independently checked. Its relevance is the joint inventory/funding exposure; simulated improvement is not evidence of a deployable carry trade.

Further reading: Le · Funding-aware optimal market making · 2026 ↗

def linear_perp_profit(quantity,entry,exit,funding_prices,funding_rates,fees=0):
    if len(funding_prices)!=len(funding_rates) or fees<0: raise ValueError("Aligned funding records and nonnegative fees required")
    funding=sum(quantity*p*f for p,f in zip(funding_prices,funding_rates))
    return quantity*(exit-entry)-funding-fees,funding

print(linear_perp_profit(.1,50000,50500,[50000],[.001],4))