No one understands funding rates better than old-timers.

A comprehensive explanation of funding rates— the unseen behind the scenes of casinos.
1⃣ What is a funding rate? / Funding rate
FR is the periodic payment exchanged between traders, aimed at keeping the perpetual futures contract price close to the index price.
Key point: What is the index price? How is the index price formed?
It is the true market fair value calculated by collecting prices from multiple mainstream, highly liquid spot exchanges for the corresponding trading pairs, approximately equal to the spot fair price.
2⃣ How to interpret FR?
Beginners only look at the FR value; insiders look at the trend.
The trend of FR changes is often more meaningful than the actual value.
3⃣ How is a negative FR formed?
It is dominated by bears, causing the contract price to be below the market fair value.
Two conditions must be met simultaneously for a negative FR to form.
What does it mean to be bear-dominated? Taker sell is stronger than taker buy.
4⃣ What is the connotation of a negative FR?
1- Short holders need long holders to pay fees, which may cause short positions to bear excessive costs and be forced to close, making fragile shorts easily turn into longs.
2- Stable or firm spot prices indicate that spot trading is dominant in buying or holding.
Discrepancies between spot and contract traders increase, and the larger the divergence, the more extreme the market sentiment.
3- The more aggressive the shorts, the more negative the FR, increasing the cost/pressure on short positions, indirectly benefiting longs.
Therefore, sustained or high negative FR may indicate the market is entering a fear phase, with downward momentum about to exhaust.
Like a spring, the tighter it is compressed, the greater its rebound force.
Final summary:
Sustained negative FR usually means prices won't crash.
Sustained positive FR may indicate an overheated market, with risks beginning to emerge.
Case studies sent via private message in the group.
I will analyze two typical cases to help you understand FR once and for all.