Crypto Funding Rates: A Measure of Positioning and Leverage
Crypto funding rates are periodic payments between traders holding long and short positions in perpetual futures. They help keep perpetual contract prices close to the underlying cryptocurrency's spot price.
The basic rule is simple: when funding is positive, longs pay shorts; when it's negative, shorts pay longs.
Funding rates are closely watched as a measure of positioning. Persistently high positive rates can signal aggressive bullish leverage, while deeply negative rates can show heavy bearish positioning.
Crypto perpetual futures have no expiration, unlike traditional futures contracts. Funding is the mechanism exchanges use to keep perpetual prices aligned with spot markets. When a perpetual contract trades above spot, funding generally turns positive and longs pay shorts. When it trades below spot, funding can become negative and shorts pay longs.