Negative funding occurs in perpetual futures markets when the funding rate is below zero, meaning short position holders pay long position holders. This situation indicates that a majority of traders are betting on a price decline, driving the perpetual contract price below the spot price of the underlying asset. Negative funding often suggests a prevailing bearish sentiment in the market. It can precede a short squeeze if the price unexpectedly rises.
Context
Crypto news often references negative funding rates as a key indicator of bearish market sentiment, particularly for major cryptocurrencies. A prolonged period of negative funding can signal that short positions are becoming crowded, potentially setting the stage for a price reversal or a short squeeze. Monitoring negative funding provides valuable insight into speculative positioning and helps analysts assess the risk of significant market movements.
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