Funding rates are periodic payments made between holders of long and short positions in cryptocurrency perpetual futures contracts. These rates are designed to keep the futures contract price aligned with the spot market price. A positive funding rate means longs pay shorts, while a negative rate means shorts pay longs.
Context
Funding rates are a critical metric for traders and analysts observing the derivatives market, offering insights into market sentiment and leverage. High positive or negative funding rates can signal strong directional conviction or potential for liquidations. News regarding significant shifts in funding rates often precedes or accompanies notable price action in the underlying cryptocurrency.
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