Funding Rate
What it shows
The funding rate is the periodic fee between longs and shorts on perpetual futures. It shows which leveraged side pays the other, i.e. where the crowding is.
How to read it
Extremely high funding signals crowded longs and vulnerability to sharp drops; persistently negative means an excess of shorts, historically fuel for rebounds. Read it together with open interest.
Parameters
- Funding rate (%)
- Positive = longs pay shorts (bull crowding); negative = shorts pay longs (bear crowding).
- Positive reading: Negative or very low: historically a capitulation and accumulation zone, little bull leverage.
- Negative reading: Strongly positive (e.g. >0.05%): historically overheated leverage, risk of a sharp long squeeze.
- Neutral reading: Around zero: a balanced leverage market.
Example
A positive and sharply rising funding (e.g. +0.08%) means longs pay shorts. This indicates a leveraged crowd on the upside, historically prone to sharp reversals (long squeeze). Negative funding favors shorts; values near zero mean balanced leverage.