Does a Negative Funding Rate Increase or Decrease the Cost of Holding a Long Position?
A negative funding rate decreases the cost of holding a long position; in fact, it results in a payment to the long position holder. This payment acts as a yield or rebate, making it cheaper or even profitable to hold a long perpetual swap position.
Glossar
Funding Rate
Mechanism ⎊ Funding Rate represents a periodic payment exchanged between traders holding opposing positions in perpetual futures contracts, establishing an equilibrium between contract prices and the underlying spot market.
Negative Funding Rate
Mechanism ⎊ Negative funding rates in cryptocurrency perpetual contracts represent periodic payments from long positions to short positions, determined by the difference between the index price and the perpetual contract price.
Cost of Holding
Carry ⎊ The cost of holding, or carry cost, represents the expenses incurred to maintain a position in a financial instrument over time.
Negative Funding
Phenomenon ⎊ Negative funding is a market phenomenon specific to cryptocurrency perpetual futures contracts, occurring when the contract's price trades below the underlying spot index price, a condition known as backwardation.