How Does a Positive Funding Rate Affect a Long Position?
A positive funding rate means that the perpetual contract is trading at a premium to the spot price, indicating that there is higher demand for long positions. Consequently, traders holding a long position must pay the funding rate to traders holding a short position.
This payment acts as a cost to the long holder and a reward to the short holder, incentivizing arbitrage to push the contract price back towards the spot price.
Glossar
Negative Funding Rate
Mechanism ⎊ Negative funding rates in cryptocurrency perpetual contracts represent periodic payments from long positions to short positions, determined by the difference between the index price and the perpetual contract price.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.
Long Position
Position ⎊ A long position in cryptocurrency derivatives, options trading, or broader financial derivatives signifies an expectation of an asset's price appreciation.
Positive Funding Rate
Mechanism ⎊ A positive funding rate within perpetual futures contracts, prevalent in cryptocurrency derivatives exchanges, signifies a prevailing long bias amongst traders.
Perpetual Contract
Mechanism ⎊ Perpetual contracts, within cryptocurrency and derivatives markets, represent agreements to buy or sell an asset at a specified price, differing from traditional futures by lacking an expiration date.
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.