#CryptoFees101
# **What is FUNDING RATE**
Funding Rate is a term that may be unfamiliar to newcomers, but it is a favorite metric for seasoned traders to scalp and identify market trends.
Funding Rate (funding fee) is the amount that both Long and Short sides have to pay each other, depending on which side is more dominant, with the goal of keeping the Futures price from deviating too far from the Spot price.
> 🔺 Positive funding rate (+) : more Longs → Long pays fee to Short
> 🔻 Negative funding rate (-) : more Shorts → Short pays fee to Long
What does high funding indicate?
> - High positive funding → Many Longs → The market may be forced down to liquidate Long positions
> - Deep negative funding → Many Shorts → The market may be pushed up to liquidate Short positions
__Example of how to calculate funding__
WCT in the image has a current funding rate of -0.1189% → This means negative funding, so there are more Shorts than Longs.
If you take a SHORT position of 100$ with a leverage of x40, the funding fee to be paid is: 100$ × 40 × 0.1189% = 4.756$. Not counting profit and loss, you would already incur a funding fee of 4.756$ ! Conversely, if at that time you were LONG, you would receive 4.756$ from the Short side, which would be added directly to your margin balance.
But don't worry, it's not that just being SHORT or LONG means you immediately pay the funding fee. The funding fee is paid on a time frame, mostly every 4-8 hours. This means if you close your position before the funding fee is due, you won’t incur this cost. Many traders who plan to scalp usually enter trades after the funding fee time or close their positions when approaching the funding fee time if the funding rate is very high at that moment!
