Again about funding - what does it depend on?
🤔 The basic understanding "minus funding means shorts pay longs" is enough for a beginner trader. However, when newbies try to interpret it, they generate confusing theories in the chat due to the lack of understanding where it comes from. Let's figure it out 🤓
👉 Funding is an exchange tool for balancing spot and futures prices. Since spot and futures are not related to each other, without funding the price would easily go in different directions. Accordingly, when you see large funding, it means that the prices have diverged a lot — and the stronger, the higher it is. For example, with negative funding, the spot price is higher than the futures price, and the stock exchange encourages traders to open long positions and thereby raise the price.
🤷♀️ Why is this happening? This is a sign of significant activity or manipulation. For example, someone actively buys on the spot, and short on futures (or simply no one wants to long) - it turns out a minus. It is impossible to "short" on the spot, so large positive funding is less common than negative funding. Sooner or later, the price will level off, and then the funding will return to neutral - therefore, with high funding, follow what is happening on the spot☝️