How to understand a positive or negative funding rate

The funding rate brings the prices of perpetual futures closer to spot prices. An interesting mechanism. How can we determine its direction?

1. Market Position Ratio

Positive rate: There are more long positions. The market is optimistic. Long traders pay short traders.

Negative rate: More shorts. Bearish sentiment. Short sellers are giving money to long holders.

Everything is simple.

2. The difference between contract and spot prices

Positive: The contract is more expensive than the spot. Premium index up.

Negative: The contract is cheaper than the spot. The premium is going down.

It seems logical.

3. Participants' Sentiments

Positive: Optimism is off the charts. Bulls are ready to pay.

Negative: Bears are ruling the ball. Short sellers are shelling out.

Market psychology, nothing can be done.

4. Calculation Mathematics

The formula looks like this:

\text{Funding Rate} = \text{Interest Rate} + \left( \frac{\text{Price of Perpetual Contract} - \text{Spot Price}}{\text{Spot Price}} \right)

When the contract is above the spot – the premium is positive. Below – it is negative. It's not very obvious at first glance, but it works.

5. How the market regulates itself

Platforms adjust bids based on the situation. Many long positions? Bid up. Short sellers dominate? Bid down.

Data from September 2025 shows: funding rates are jumping. The market is nervous. Investors change their mood like gloves.