What Is the Relationship between Funding Rate and Open Interest?

Open interest is the total number of outstanding or unclosed futures contracts. The funding rate reflects the directional bias of the open interest.

If open interest is heavily skewed towards long positions, the funding rate will likely be positive and high. Conversely, if open interest is heavily skewed towards short positions, the funding rate will be negative.

The funding rate acts to balance the directional distribution of the open interest.