What is the funding rate? If you don't understand, you must take a look!!!
Today, a fan asked me why I didn't lose money on the shanzhai contract but still lost dozens of USDT? This is the funding rate.
What is the funding rate?
The funding rate refers to the interest rate at which funds are exchanged between short and long positions in the perpetual contract market. Its main purpose is to keep the price of perpetual contracts closely linked to the spot price of the underlying asset. When there are more long positions in the market, the funding rate is usually positive, meaning longs need to pay the funding rate to shorts; conversely, when there are more short positions, the funding rate is negative, and shorts pay the funding rate to longs.
The significance of the funding rate
The main role of the funding rate is to guide traders' behavior through a reward or punishment mechanism, thereby making the price of perpetual contracts closer to the spot price. For example, when the price of a perpetual contract is higher than the spot price, the funding rate is positive, and longs have to pay fees, which will encourage some longs to close their positions, thereby lowering the price of the perpetual contract closer to the spot price. The opposite is also true.
The meaning of positive and negative funding rates
Positive funding rate: When the funding rate is positive, this means that longs need to pay fees to shorts. This usually occurs when there are more longs in the market, indicating bullish market sentiment.
Negative funding rate: When the funding rate is negative, shorts need to pay fees to longs. This usually occurs when there are more shorts in the market, indicating bearish market sentiment.
Market impact of the funding rate
Changes in the funding rate can reflect changes in market sentiment. By observing the changes in the funding rate, one can judge the strength of bulls and bears in the market. For example, when the funding rate remains positive and gradually rises, it may indicate that the market is in a strong bullish phase, with investors having strong bullish sentiment; conversely, when the funding rate remains negative, it may indicate that the market is in a strong bearish phase, with widespread bearish sentiment.
Of course, when judging the market, one cannot rely solely on the funding rate! This is just a point of reference. #关注我获取更多一手咨询
