Funding Rate
Periodic payments exchanged between long and short positions in perpetual futures to keep prices anchored to spot.
In-Depth Explanation
Funding rates are the mechanism that makes perpetuals work. When the perp price exceeds spot, funding is positive—longs pay shorts, incentivizing shorting to push price down. Negative funding means shorts pay longs. Funding rates are typically exchanged every 8 hours. Extreme funding rates indicate crowded positioning and potential reversal risk.
Related Terms
Perpetual Futures
PerpsFutures contracts with no expiration date that track an underlying asset's price through a funding rate mechanism.
Leverage
Using borrowed capital to amplify potential returns (and losses) on an investment position.
Basis Trade
An arbitrage strategy exploiting the price difference between spot and futures/perpetual markets.
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