How Does a High Positive Funding Rate Indicate Market Sentiment?
A high positive funding rate indicates that the perpetual contract price is significantly higher than the underlying asset's spot price. This is a strong indicator of bullish market sentiment, as it means there is a large excess of long positions over short positions.
The longs are willing to pay the shorts a high rate to maintain their positions, suggesting a strong belief in further price increases.
Glossar
High Positive Funding
Funding ⎊ High positive funding describes a market state where the funding rate for perpetual futures contracts is substantially above zero.
Long Positions
Exposure ⎊ Long positions, within cryptocurrency derivatives, represent a directional bet anticipating an increase in the underlying asset’s price, establishing a net long gamma exposure.
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.
High Positive Funding Rate
Mechanism ⎊ A high positive funding rate within perpetual futures contracts signifies a prevailing long bias in the market, where traders are collectively willing to pay a premium to hold long positions relative to short positions.