💭 What is the Funding Rate?

The funding rate is the key difference between the current market value of a perpetual contract and the index price, which reflects the value of the underlying asset. It plays a crucial role in keeping derivative quotes aligned with spot prices and facilitates periodic payments in the perpetual futures market.

### Here’s How It Works:

- **🟢 Positive Funding Rate:** When the futures price is higher than the underlying asset, long position holders pay a fee.

- **🟠 Negative Funding Rate:** When the futures price is lower, short position holders incur costs.

### Key Takeaways:

1️⃣ The funding rate helps maintain price parity in the futures market and indicates investor sentiment.

2️⃣ Low funding values suggest a bearish trend with more short positions, while high values indicate bullish sentiment.

3️⃣ Holding positions can become unprofitable based on funding rates, so consider these indicators before entering medium-term trades.

Stay informed and trade smart!

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