Definition ∞ Negative funding rates occur in perpetual futures contracts, typically in cryptocurrency markets, when short position holders compensate long position holders. This situation indicates that a majority of traders anticipate a price decrease and are willing to pay a premium to maintain their short positions. It often suggests bearish market sentiment and a potential for short squeezes if prices unexpectedly increase.
Context ∞ News reports often analyze negative funding rates as an indicator of prevailing market sentiment and potential price movements in digital asset derivatives. The discussions frequently explore whether sustained negative rates signal an impending market reversal or simply reflect extreme bearishness. Traders and analysts closely monitor these rates for insights into market positioning and potential short-term variability.
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