Funding rate
The funding rate is a periodic payment exchanged between long and short traders in a perpetual futures market to keep the perp price tethered to the underlying spot price. When funding is positive, longs pay shorts and the market is net-long; when it is negative, shorts pay longs and positioning is net-short.
How it works
A perp has no expiry, so nothing forces it back to spot except funding. When the perp trades above spot, funding turns positive and longs pay shorts, nudging traders to close longs; when it trades below, funding turns negative and shorts pay longs. Payments are usually settled every eight hours as a small percentage of position notional.
How to read it
Funding is a positioning gauge. Persistently high positive funding means longs are crowded and paying up to stay in — leverage is building and the market is vulnerable to a long squeeze. Deeply negative funding means shorts are crowded, which can set up a short squeeze. Extremes in either direction often precede a liquidation flush that resets positioning.
How to compare venues
Quoted funding is usually per-interval, so annualize it to compare across exchanges and against spot yields. A 0.01% eight-hour rate is roughly 11% a year — small; multi-tenths-of-a-percent prints are the ones that signal real crowding.
Common misreads
Funding tells you how positioning is leaning, not which way price will go — crowded longs can stay crowded in a strong trend. Small positive funding is the normal resting state in a bull market, not a warning. Read it alongside open interest and liquidations, not alone.