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What Is the Funding Rate?
The funding rate is a periodic payment between long and short positions that keeps the perpetual futures price close to spot. When funding is positive, longs pay shorts; when negative, shorts pay longs.
What does the funding rate tell you?
High positive funding suggests the long side is crowded and aggressive; negative funding suggests shorts dominate. Extreme funding periods carry cost pressure and squeeze risk. Funding is usually charged every 8 hours and directly affects the cost of holding an open position.
How to read positive and negative funding
Persistently high positive funding can mean longs are expensive and the market is crowded on one side. Negative funding shows shorts are the majority; in some cases it sets up a short squeeze.
- Funding alone is not a direction signal.
- Extreme values increase reversal or squeeze risk.
- Funding cost accumulates on positions held for long periods.
How funding affects position cost
The funding payment applies to the nominal position size; on a leveraged position the cost can look large relative to margin. On positions held for long, cumulative funding can significantly shift the profit/loss balance.
- Know whether you will hold the position across a funding timestamp.
- Holding through high funding periods is costly.
- Include the cost in your calculation before entry.
Checklist
- Was the pair's current funding rate checked?
- Is the funding timestamp included in the position plan?
- Was extreme funding vs one-sided crowding evaluated?
- Was cumulative funding cost calculated for longer holds?
Frequently asked questions
Not certain. High positive funding shows long crowding; it raises cost pressure and possible long squeeze risk but gives no timing.
On most exchanges every 8 hours; it can vary by exchange and pair.