Perpetual Funding Rates

Definition ∞ Perpetual funding rates are periodic payments exchanged between traders holding long and short positions in perpetual futures contracts on digital assets. These rates ensure that the contract price remains closely aligned with the underlying spot price of the asset. A positive funding rate means long position holders pay shorts, while a negative rate indicates shorts pay longs. They serve as a mechanism to balance supply and demand in the perpetual futures market. These rates are a key indicator of market sentiment and leverage.
Context ∞ Perpetual funding rates are a closely watched metric in cryptocurrency derivatives markets, providing insights into prevailing market sentiment and the degree of speculative activity. News articles frequently reference significant shifts in funding rates as an indicator of potential price movements or market overheating. Understanding these rates is crucial for traders managing positions in perpetual futures and for assessing overall market risk in the digital asset derivatives sector.