Funding vs Open Interest: Why Both Are Needed for Accurate Market Sentiment
Funding and open interest are two signals that traders use to gauge market sentiment in cryptocurrencies. However, they often tell different stories about the same crowd.
Funding measures the bias and cost of carry in perpetual swaps, reflecting near-term directional skew and risk appetite. It can be a decent sentiment gauge but is noisy due to weekend liquidity, exchange-level quirks, and hedged basis trades.
Open interest counts live contracts across perps, dated futures, and options. Rising OI suggests fresh risk on, while falling OI hints at de-risking or hedges closed. It doesn't say which side is winning.
The signals can diverge, and it's essential to look at cross-venue, percentile ranges, and time windows. A single odd reading during illiquid hours isn't a signal.