How Does a High Positive Funding Rate Indicate an Overbought Market?

A high positive funding rate means that long position holders are paying short position holders a significant premium to keep their positions open. This high payment indicates that the demand for long positions (speculative buying) is significantly greater than the demand for short positions, causing the perpetual contract price to trade at a premium to the spot price.

This premium is a strong signal of an overbought or overly bullish market sentiment, often preceding a price correction.