Futures Funding Rate

Definition ∞ The futures funding rate is a periodic payment exchanged between long and short positions in perpetual futures contracts. This rate helps anchor the price of a perpetual futures contract to the underlying spot price of the asset. When 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 bearish sentiment. The magnitude and direction of this rate provide a real-time gauge of market participants’ directional bias and leverage levels.
Context ∞ In cryptocurrency markets, the futures funding rate is a key metric for assessing market sentiment and potential volatility. News analysis frequently references changes in funding rates to explain shifts in market momentum or predict liquidations. Extreme positive or negative rates can signal an overheated market or an impending price correction, offering valuable insights into the collective positioning of derivatives traders.