How Does a Funding Rate in Perpetual Swaps Relate to Leverage and Risk?

The funding rate is a periodic payment between long and short traders in a perpetual swap to keep the contract price anchored to the underlying asset's spot price. High leverage amplifies the impact of this rate.

A high positive funding rate (longs pay shorts) can increase the cost of a highly leveraged long position, adding to the risk of a margin call. Conversely, a high negative rate (shorts pay longs) increases the risk for highly leveraged short positions.