Plain English
The funding rate is the small payment exchanged between perp longs and shorts every 1–8 hours to keep the perp price aligned with spot. Positive funding = longs pay shorts (perps trading above spot, bullish sentiment). Negative funding = shorts pay longs (perps below spot, bearish sentiment).
How it actually works
Each venue publishes a funding formula based on the gap between mark price and an index price. The rate is usually a fraction of a percent per period — but on 10x leverage paid every 8 hours, even 0.05% per period works out to about 5.5% annualized cost (or income). Funding can spike dramatically during major moves.
What it means for you
Funding is both an indicator and an income stream. Persistent extreme positive funding often precedes long squeezes (over-leveraged longs flush out); extreme negative funding often precedes short squeezes. As an income, going short on a high-funding perp while owning spot is the classic basis trade — paid the funding rate to be hedged.
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Educational content only. Not investment, tax, or legal advice.