Ethereum Funding Rate

Definition ∞ The Ethereum funding rate is a periodic payment exchanged between long and short position holders in ETH perpetual futures contracts. A positive funding rate means long positions pay short positions, indicating bullish sentiment, while a negative rate means short positions pay longs, suggesting bearish sentiment. This mechanism helps anchor the perpetual contract price to the spot price of Ethereum. It serves as a key indicator of market bias.
Context ∞ The Ethereum funding rate is a frequently cited metric in crypto news to gauge the prevailing sentiment among leveraged traders. A consistently high positive funding rate often precedes price corrections as longs become overleveraged. Conversely, a negative funding rate can indicate a potential short squeeze scenario. Monitoring this rate offers valuable insight into the speculative dynamics and overall health of the Ethereum derivatives market.