Perpetual futures have no expiry, so exchanges use a funding rate mechanism to keep the contract price tethered to the spot price. This fee is paid every 8 hours — and it can quietly eat your profits.
When more traders are long than short, longs pay shorts. This usually happens when the market is euphoric and perpetual prices trade above spot. High positive funding is often a sign of overheated long positioning.
When more traders are short than long, shorts pay longs. This typically happens during fear-driven sell-offs when perpetual prices trade below spot — a contrarian signal that shorts may be overcrowded.
Extremely high positive funding (0.1%+ per 8 hours) often precedes long squeezes. Extremely negative funding often precedes short squeezes. Watching funding rates can reveal when a market is dangerously one-sided.
If you hold a leveraged long for a week during high positive funding, the cumulative fee can be 2-5% of your position — separate from price movement. Factor funding cost into any multi-day leveraged position.
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