Definition ∞ The funding rate is a periodic payment exchanged between traders in perpetual futures contracts to keep the contract price closely aligned with the spot market price of the underlying asset. If the funding rate is positive, long position holders pay short position holders, indicating a bullish market sentiment. Conversely, a negative funding rate means short position holders pay longs, suggesting a bearish outlook. This mechanism prevents significant divergence between the perpetual contract price and the asset’s spot price.
Context ∞ The funding rate is a key metric for traders in crypto derivatives markets, providing insight into market sentiment and potential price movements. A high positive funding rate can suggest an overheated market, potentially preceding a correction. Conversely, a significantly negative rate might indicate extreme bearishness. Understanding funding rates is crucial for assessing market equilibrium and anticipating volatility in perpetual futures.
Blockchain Knowledge
Cryptocurrency Foundation
Cryptospace Newsfeed
