What is Funding Rate?

In the crypto derivatives market, there’s a type of contract called a perpetual contract (unlike futures contracts, it has no expiration date). As a result, a fee (funding rate) is incurred between buyers and sellers to keep the perpetual contract’s price close to the spot market price, preventing significant divergence.

This fee encourages traders to adjust their positions based on supply and demand, maintaining a balanced and stable market, while preventing price manipulation and long-term price discrepancies.

• Funding Rate > 0: Long traders pay fees to Short traders.
• Funding Rate < 0: Short traders pay fees to Long traders.

Watch the video for further details.