Perpetual futures quietly drain 10% per year from long positions, The Economist warns

There’s a quiet toll booth on the highway of leveraged crypto trading, and most retail investors don’t even notice they’re paying it. The Economist published a deep dive into perpetual futures contracts, revealing that positive funding rates can siphon off more than 10% of a long position’s notional value over the course of a year. How the funding rate machine works Perpetual futures are exactly what they sound like: futures contracts with no expiration date. Traditional futures expire monthly or quarterly, forcing traders to roll positions and giving the market natural reset points. Perpetuals skip all that, letting you hold a leveraged bet indefinitely. The catch is the funding rate mechanism. When the perpetual futures price trades above the spot price, long holders pay short holders a fee. This payment typically occurs every eight hours on major platforms. Three payments a day, every day, for as long as you hold the position. The Economist notes that while negative funding rates do occur, the skew is overwhelmingly toward positive rates, disproportionately punishing long holders during exactly the kind of bullish conditions that attract retail traders in the first place. From a...