Funding Rate Trading is a strategy focused on profiting from the differential between perpetual futures contract prices and their underlying spot asset prices. The funding rate is a periodic payment exchanged between long and short positions to keep the contract price aligned with the spot price. Traders seek to earn these payments by holding specific positions.
Context
Funding rate trading is a prominent activity in cryptocurrency derivatives markets, particularly on platforms offering perpetual swaps. Market participants monitor these rates for arbitrage opportunities and to gauge market sentiment. Significant shifts in funding rates often signal changes in market bias and potential volatility.
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