Can a Funding Rate Ever Be Zero, and What Would That Imply?
Yes, a funding rate can be zero, though it is rare and usually fleeting. A zero funding rate implies that the perpetual swap price is trading exactly at the spot price, and the demand for long and short positions is perfectly balanced.
It suggests a neutral market sentiment with no net pressure on the swap price.
Glossar
Net Pressure
Calculation ⎊ Net pressure is a calculated metric representing the aggregated directional force exerted by market participants, derived by subtracting the total selling volume or open interest from the total buying volume or open interest over a specified period.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.
Long and Short Positions
Position ⎊ These represent the two fundamental directional exposures in derivatives markets, either profiting from an increase in the underlying asset price or from a decrease.
Zero Funding Rate
Equilibrium ⎊ ⎊ A zero funding rate in cryptocurrency perpetual swaps signifies a market state where the cost of holding a long position is equivalent to the cost of holding a short position, effectively establishing an equilibrium between buyers and sellers.
Neutral Market Sentiment
Equilibrium ⎊ Neutral market sentiment describes a state of psychological equilibrium where the collective expectations of price movement are balanced, resulting in a lack of strong directional conviction among participants in the crypto derivatives market.
Funding Rate
Cost ⎊ The Funding Rate is the periodic payment exchanged between long and short positions in perpetual futures contracts, designed to anchor the contract price to the underlying spot index price.