Funding fee is a fee paid for keeping your position open for a certain period of time in leveraged transactions. This fee occurs frequently, especially in futures and margin transactions. This duration is approximately 8 hours. The funding fee, which is paid 3 times a day, can be increased to 4 payments in order to control the price, although it is rare.
The funding fee may increase or decrease depending on the price difference between the spot market and the forward market of the parity you are trading with. The Funding rate we see in the stock markets also shows us the percentage representation of these metrics.
For example, if the price of the parity on the Spot side is higher than the Futures, we can say that Short transactions are dominant for that parity. In such a case, we can observe that the funding rate is negative. We can see that the wider this price difference widens, the more the weight of Short transactions increases and the Funding rate increases towards negative. In such a case, a certain portion of the funding fee paid by those in short transactions is paid to those in long transactions until the price difference between spot and futures is balanced.
Since the market usually moves against the majority, you can use it as an indicator in your transactions instead of taking transactions based on the funding rate data.