Definition ∞ A funding rate low indicates a period where the periodic payments exchanged between long and short positions in perpetual futures contracts are at a reduced level. A low or negative funding rate suggests that short position holders are paying long position holders, or that the payment is minimal. This condition can reflect a lack of strong bullish sentiment or even a slight bearish bias in the derivatives market. It serves as a market indicator.
Context ∞ Traders and analysts closely monitor funding rates to gauge market sentiment and anticipate potential price movements in cryptocurrency derivatives. A persistently low funding rate can precede a short squeeze if spot market buying increases. News often references funding rate data to explain market conditions or predict shifts in trading behavior.
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