Does Higher Leverage Increase or Decrease the Funding Rate in Perpetual Swaps?
Leverage itself does not directly increase or decrease the calculated funding rate. The funding rate is determined by the difference between the perpetual contract's price and the spot price (the basis).
However, high leverage can indirectly influence the funding rate by contributing to larger open interest and greater price divergence, as highly leveraged traders are more sensitive to market movements, potentially skewing the market and thus the funding rate.
Glossar
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.
Higher Leverage
Exposure ⎊ Higher leverage fundamentally increases a trader's market exposure by allowing control of a larger notional position with a smaller amount of capital.
Highly Leveraged Traders
Concentration ⎊ Highly Leveraged Traders are market participants who utilize significant notional exposure relative to their posted margin or capital base in derivatives, particularly in cryptocurrency perpetual swaps and options.