Funding, explained like you're not a quant

Funding is the rent you pay for holding a contract that never expires. Polymarket collects it every hour, which means the meter on your position ticks 24 times a day instead of the three most venues charge.

Below is what every listed market is paying right now, straight off Polymarket’s public funding and ticker endpoints, followed by the mechanics that produce those numbers.source↗

What every market is paying

Read it as a crowding gauge. A market near the top of the first panel is one where the perp has been bid above its index and the longs are numerous enough that they are paying to stay there. A market in the second panel is the opposite — a crowded short paying a long to hold the other side.

Every hour, not every eight

Polymarket’s funding charge window is 1 hour.source↗ The convention on the large centralised venues is eight, so the same position turns its carry over eight times more often here. Hyperliquid settles hourly too.

What that changes in practice is not the annualised cost — an hourly rate is an eight-hour rate divided by eight — but the granularity. Your carry is more current, because it is priced off the last hour of order book rather than the last third of a day. And it is less avoidable: the old trick of flattening a position ahead of a funding stamp and reopening after has 24 chances a day to catch you, and costs two trading fees each time you dodge it. The fee page does that arithmetic properly.

Twenty-four settlements a day, not three. It runs while you sleep.

How the premium index is built

How far is this perp trading from what the underlying is actually worth? Polymarket answers that 720 times an hour — a sample every 5 seconds — by spending imaginary money.source↗

Each sample walks the order book from the top for $1K of quote notional on each side and takes the volume-weighted average price it would have paid. That gives a bid impact price and an ask impact price: not the best quote, but the price a real $1K order would actually get. A one-lot quote parked at a silly price does not move it.

bid_impact = VWAP of top bids filling 1,000 quote notional
ask_impact = VWAP of top asks filling 1,000 quote notional

IPD = max(bid_impact − Index, 0) − max(Index − ask_impact, 0)
PremiumIndex = IPD / Index

The IPD line is positive only when the bid impact price sits above the index — the book is willing to buy above fair value — and negative only when the ask impact price sits below it. In between, when the index falls inside the impact spread, both terms are zero and the premium is zero. A wide spread does not manufacture funding.

If a side of the book is too thin to fill $1K, that side falls back to the index price, which zeroes its contribution to IPD.source↗ So an illiquid market does not produce a wild funding rate from a wild-looking book — it produces a quiet one. Thin books understate premium. A near-zero rate does not mean a market is in balance.

The index price in those formulas is Polymarket’s own aggregate of external feeds, not the local order book.source↗ Which of the three prices does what.

The formula, in two lines

The hour’s samples are averaged into a mean premium, and then two lines turn that into a charge.source↗

F_8h = scale × (mean_P + clamp(0.0001 − mean_P, ±0.0005))
FR_hour = clamp(F_8h / 8, ±0.04)

In English, one term at a time:

• ▸mean_P — the average premium index over the hour. This is the market telling you which side is crowded.
• ▸The clamp term — a fixed interest leg of +0.01% per eight hours, pulled toward the premium and bounded at ±+0.05%. When the premium is small the interest leg dominates. When the premium is large the clamp stops the interest leg mattering.
• ▸scale — 1 on crypto markets, 0.5 on stocks, indices and commodities. Non-crypto funding is literally half-price.
• ▸Divide by eight, then clamp — the formula produces an eight-hour figure. Polymarket divides it into the hour it actually charges and caps the result at 4%.

Flat is not free

Substitute a mean premium of zero into the eight-hour line: the clamp resolves to the full +0.01% because zero is well inside ±+0.05%, scale leaves it alone on crypto, and dividing by eight gives +0.0013%.

This is the argument against holding a leveraged long forever because you are “right long-term”. At 11.0% a year on notional, a 10x position is burning that rate on ten times the money you posted. The direction has to arrive faster than the carry. Which markets are crypto and which are half-price is in the market list.

Right about direction, wrong about the crowd

Funding does not care whether you are correct. It cares whether you are crowded. Those are different questions and the second one is the one that bills you hourly.

Take a $10,000 crypto long, held for a day, on a market where the perp has been trading 0.10% above its index — a normal amount of enthusiasm, not a mania. The formula returns +0.0063% an hour, so the day costs $15. The same position on a market with no premium at all costs $3. Identical view, identical size, identical outcome in the underlying — $12 of difference, purely because other people agreed with you loudly enough to bid the perp above fair value.

You can be right about the direction and still pay for being crowded.

The tracker above will not tell you where a price is going. It will tell you what the consensus costs to join, and whether the other side is being paid to take it.

The edges: caps, sessions, who gets paid

• ▸Funding is a transfer, not a fee. Whatever longs pay, shorts receive. Polymarket keeps none of it.source↗ Trading fees are a separate charge, taken per fill on notional.
• ▸The hourly rate is capped at 4%. That is a ceiling per settlement, which at 24 settlements would still be 96% of notional in a day if it were ever pinned there. The cap is protection against a dislocated book, not a comfortable number.
• ▸Funding runs in every session. Overnight, weekend, disrupted, halted — the charge window keeps turning even when the underlying stock or commodity market is shut.source↗ Sessions change which external feeds build the index price, and nothing else. What actually changes when the exchange closes.
• ▸Funding is subtracted from equity. It sits in the equity calculation alongside unrealised PnL and fees due, which means accrued funding moves your liquidation price against you on a position you have not touched.source↗
• ▸The premium is built from impact prices, not the mark. Mark price is what margins and liquidates you; the funding premium is computed against the index using order book impact prices.source↗

None of this is exotic. It is just charged eight times more often than the eight-hour convention, and it starts above zero. The overview page puts funding next to everything else if you want the whole product in one sitting.