Funding rates: what they really tell you

Funding rates are often misunderstood by retail traders. Many see them as a signal to blindly go long or short, without understanding what they actually represent. Funding is simply a mechanism to keep perpetual futures prices aligned with the spot market.

When funding is highly positive, it means most traders are long and paying a premium to stay in their positions. When it’s deeply negative, the majority is short. Extreme funding levels usually signal crowded positioning, not guaranteed reversals.

Professional traders don’t trade funding alone. They use it as context: high funding increases the risk of long liquidations; negative funding increases the risk of short squeezes. It tells you where pressure is building, not the exact timing.