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Crypto
Funding Rate
The periodic payment between long and short traders in perpetual futures to keep the contract price close to the spot price.
Funding rates are a key feature of perpetual futures. Positive rates mean longs are paying shorts. Negative rates mean shorts are paying longs. Traders watch funding rates closely — extremely high rates often signal a crowded trade and possible reversal.
It's like a small rent payment that longs pay to shorts (or vice versa) every few hours to keep things fair.
Real world: When many people are long Bitcoin perpetuals, the funding rate becomes positive and longs pay shorts every 8 hours. This encourages some longs to close and shorts to open, pulling the price back toward spot Bitcoin.
💡 Funding rate is the cost (or reward) of holding a leveraged perpetual position.