Funding rates are periodic payments between traders to make the perpetual futures contract price is close to the index price.
Funding rates make the perpetual futures contract price close to the index price. It is made be closer to the spot prices and cover some of the gap generated by the perpetual period of time.
All cryptocurrency derivatives exchanges use funding rates for perpetual contracts and the standard unit is a percentage.
Funding Rate is a result of market behaviors and could be used to maker some interpretation in the derivative market which also is a dominant price maker in the market. However, correlating high funding rates with inevitable price drop could be a wrong interpretation. In the bull market, it have a tendency to naturally bring high funding rates with price rise.
*CryptoQuant provides minute-based funding rates compared to exchange deciding every 8 hours
Funding rates represent traders' sentiments in the perpetual swaps market and the amount is proportional to the number of contracts.
- Rates over ‘0’ (Positive rates): Dominant Long SentimentPositive funding rates indicate that long position traders are dominant and are willing to pay funding to short traders. Positive funding rates imply that many traders are bullish.
- Rates under ‘0’ (Negative rates): Dominant Short SentimentNegative funding rates indicate that short position traders are dominant and are willing to pay long traders. Negative funding rates imply that many traders are bearish.
- Increasing trend: Longs are gaining dominance
- Decreasing trend: Shorts are gaining dominance