đ 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.
### Hereâs How It Works:
- **đą Positive Funding Rate:** When the futures price is higher than the underlying asset, long position holders pay a fee.
- **đ Negative Funding Rate:** When the futures price is lower, short position holders incur costs.
### Key Takeaways:
1ïžâŁ The funding rate helps maintain price parity in the futures market and indicates investor sentiment.
2ïžâŁ Low funding values suggest a bearish trend with more short positions, while high values indicate bullish sentiment.
3ïžâŁ 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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