Funding Rate

Funding Rate is a periodic payment exchanged between long and short position holders in perpetual futures contracts. It's the mechanism that keeps the perpetual futures price anchored to the spot price. When the futures price trades above spot, longs pay shorts (positive funding rate). When futures trade below spot, shorts pay longs (negative funding rate).

Funding Payment = Position Size × Funding Rate
Funding Rate = Premium Index + clamp(Interest Rate - Premium Index, -0.05%, 0.05%)

Funding rates are typically settled every 8 hours (00:00, 08:00, 16:00 UTC on Bybit).

Values are displayed as percentages (%), just like on the exchange. A typical funding rate of 0.01% means longs pay 0.01% of their position to shorts every 8 hours.

FR Change measures the difference in funding rate over a lookback period (also in %):

FR_Change = Current_FR(%) - FR_N_periods_ago(%)

• Market sentiment gauge — positive rates indicate bullish sentiment (longs willing to pay), negative rates indicate bearish sentiment
• Mean-reverting — extreme funding rates tend to revert, often preceding price corrections
• Cost of holding — high funding rates increase the cost of maintaining leveraged positions
• Updated every 8 hours — on most exchanges including Bybit
• Percentage display — values shown as %, matching exchange UI (e.g. 0.01% = typical positive rate)

Contrarian signals (most common use)

• Very high positive FR (> 0.05%) — market is overleveraged long, potential for correction
• Very negative FR (< -0.05%) — market is overleveraged short, potential for a squeeze
• FR approaching 0 from extreme — sentiment is normalizing

Trend confirmation

• Consistently positive FR during uptrend — trend is supported by leveraged demand
• Consistently negative FR during downtrend — trend is supported by leveraged selling
• FR flip (positive → negative) — potential trend change

| Indicator | Default Period | Description | |-----------|---------------|-------------| | FundingRate | — | Current funding rate in % (e.g. 0.01 = 0.01%) | | FR_Change(3) | 3 | Change in funding rate over N periods (in %) |

| Condition | Meaning | |-----------|---------| | FundingRate > 0.01 | Positive funding (> 0.01%) — longs pay shorts | | FundingRate < -0.01 | Negative funding (< -0.01%) — shorts pay longs | | FundingRate > 0.1 | Extremely high funding (> 0.1%) — overleveraged longs | | FundingRate > 0 | Any positive funding — bullish bias | | FR_Change(3) > 0 | Funding rate increasing — growing bullish sentiment | | FR_Change(3) < 0 | Funding rate decreasing — fading bullish sentiment |

• Extreme funding rates (> 0.1% or < -0.1%) often precede liquidation cascades and sharp reversals
• Use funding rate as a contrarian indicator — trade against extreme readings
• Combine with Open Interest for stronger signals: high OI + extreme FR = high probability of a squeeze
• Remember that funding rate is settled every 8 hours, so it represents longer-term sentiment, not intraday noise
• Typical range: -0.01% to +0.01%. Values above 0.05% or below -0.05% are considered extreme
• Funding rate varies significantly between exchanges — Bybit values are used in this platform