What Is “Funding Rate” in Perpetual Swaps and How Does It Affect Traders?
The funding rate is a periodic payment between long and short traders to keep the perpetual swap price anchored to the underlying spot price. If the rate is positive, longs pay shorts; if negative, shorts pay longs.
It acts as a mechanism to balance supply and demand for leverage and is paid directly between traders, not the exchange.
Glossar
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 Swaps
Definition ⎊ Perpetual swaps are a type of derivative contract, highly popular in cryptocurrency markets, that allows traders to speculate on the future price of an asset without an expiration date.
Funding Rate Mechanism
Mechanism ⎊ Funding Rate Mechanisms within cryptocurrency derivatives represent periodic payments exchanged between traders holding opposing positions in perpetual contracts, designed to anchor the perpetual contract price to the underlying spot market.
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.