Funding rate: the payment that exposes the whole market's skew

A perpetual future (perp) has no expiry date - and to keep its price from drifting off spot, exchanges invented funding: a periodic payment between longs and shorts.

Mechanics

The perp trades above spot (the market is skewed long) - funding is positive: longs pay shorts, nudging prices toward equilibrium. The perp trades below - the reverse. The payment is charged every 8 hours (on most venues) on positions, not orders. In essence funding is the price of a direction's popularity: you pay to stand in the crowd.

How to read it

• Chronically high positive funding - the market is overloaded with leveraged longs: fuel for a long squeeze. Persistently negative - the crowd is short, a short squeeze is brewing.
• Funding against the price move - the tastiest signal: price rising on negative funding = a spot-driven rally, the shorts will burn.
• Extremes work contrarian: historical funding peaks coincide with local tops and bottoms more precisely than most oscillators.

Our engine samples majors' funding continuously - live numbers in the markets section, spikes flagged in the feed.