This instrument is also called perpetual futures1. Because there is no expiry, the price does not converge to spot at maturity as a futures price does, and the funding rate works to narrow the gap.

Consider a hypothetical example in which the funding rate for a long position with a transaction amount of 1 million yen is +0.01% per payment. The long side pays 100 yen to the short side. At −0.01%, the short side pays 100 yen to the long side.

Notes

  1. Songrun He et al., "Fundamentals of Perpetual Futures" (arXiv:2212.06888v5, June 2024), abstract and page 1 ("swap contracts that never expire") and page 10 (the long side pays when the funding rate is positive). ↩