Funding rate is a mechanism on perpetual futures exchanges (Binance, Bybit) that keeps futures prices close to spot prices. Without it, futures prices would drift far from the actual coin price.
How It Works
Every few hours (usually every 8h), funds are exchanged between long and short positions:
- Positive funding — longs pay shorts (market is overheated, too many longs)
- Negative funding — shorts pay longs (market is bearish, too many shorts)
What It Tells Us
High positive funding (0.1%+) signals excessive optimism — potential correction ahead. High negative funding means too much pessimism — potential bounce.
Disclaimer: This is not financial advice. Always do your own research.