Funding Rate
A periodic payment mechanism used in perpetual futures to align contract price with spot market price.
Key Takeaways
- Extreme positive or negative rates can indicate crowded positioning.
- Funding costs compound over time for leveraged traders.
- It is a positioning signal, not a standalone entry rule.
Key Takeaways
- Extreme positive or negative rates can indicate crowded positioning.
- Funding costs compound over time for leveraged traders.
- It is a positioning signal, not a standalone entry rule.
Related Terms
Bitcoin ETFStakingTable of Contents
What it is
A periodic payment mechanism used in perpetual futures to align contract price with spot market price. It is typically referenced by market participants to evaluate access, risk transfer, and execution convenience.
How it works
Mechanics vary by venue and jurisdiction, but the same core logic applies: structure determines cost, transparency, and risk exposure.
Why it matters
Understanding this term improves decision quality, helps compare alternatives, and reduces avoidable execution errors.
Example
When conditions change quickly, traders often misread isolated signals. A structured definition helps isolate what changed versus what is noise.
Common mistakes
- Using the term without checking context and market regime.
- Ignoring cost/fee impact when comparing alternatives.
- Assuming one indicator can replace a broader framework.
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FAQs
How often is this definition updated?
Each major market-structure or policy change triggers a review pass.
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