What is a funding rate?

What is a Funding Rate? The funding rate is calculated by considering the interest rates for both trading pair currencies and the Premium Index. The calculation either yields a positive (longs pay shorts) or a negative (shorts pay longs) funding rate.

What is the so-called funding rate?

If you have ever traded crypto futures, you must have encountered the so-called funding rate. This small percentage can eat away your position. But what does it do? Let’s find out! What Are Funding Rates? Funding rate was introduced to maintain the balance between the price of perpetual futures and the price of the underlying instrument.

What happens when funding rate is positive?

When the funding rate is positive, long positions pay short positions. When the funding is negative, short positions pay long positions. This mechanism keeps the price of spot and futures constantly in line with each other. Funding fees can be found on Bitcoin, Ethereum and every other altcoin perpetual contracts.

Is funding rate a good indicator?

Funding rate can serve as a sentiment indicator of sorts. When it is high, there is a high interest in long trades on leverage, whereas a low or even negative funding rate shows that the short is quite crowded. You can leave it at that and just be the contrarian that goes against the herd, but I don’t think you’ll be very successful.