Does Volatility Always Lead to a Positive Funding Rate?
No, volatility does not always lead to a positive funding rate. Volatility increases the magnitude of the funding rate, but the direction (positive or negative) depends on whether the contract price is trading at a premium (contango) or a discount (backwardation) to the spot price.
High volatility can cause rapid shifts in sentiment, leading to either extreme positive rates (longs dominating) or extreme negative rates (shorts dominating).
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.
Positive Funding
Funding ⎊ In cryptocurrency derivatives, particularly perpetual futures and options, positive funding rates represent a scenario where the current futures price exceeds the spot price.