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Funding Rate
Periodic payment between long and short perpetual-futures holders that keeps contract price tied to spot.
What it is
Funding rate is the mechanism that keeps perpetual futures aligned with spot price. Every 8 hours, the exchange calculates the funding rate. Positive funding = longs pay shorts (longs are crowded, demand has pushed contract price above spot). Negative = shorts pay longs (shorts crowded). Funding directly affects P&L: 0.05% funding × 3× daily = 4.5% per month cost, just to hold the position. Funding is also a sentiment indicator: extreme positive funding signals overcrowded longs — often a top is near. Extreme negative = oversold short squeeze setup.
Example
BTC funding rate hits +0.08% per 8h on Binance — historically extreme. Within 48 hours BTC drops 6% as crowded longs get liquidated and funding normalizes.
How Indikora uses Funding Rate
Indikora monitors funding rates on the major perp exchanges and uses extreme readings as inputs to its score-adjustment layer (high funding = -1 conviction).
Related terms
- Futures Contract — A derivative contract tracking an asset's price — used for leverage, shorting, and hedging.
- Liquidation — Forced position close by the exchange when losses consume all posted margin — common with high leverage.