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Funding (8h Rates)

Overview

Funding Rates are a mechanism unique to the cryptocurrency derivatives market, particularly for Perpetual Contracts. They are designed to ensure the price of the perpetual contract is kept close to the underlying reference price. The funding rate is exchanged between long and short holders.

Interpretation

The Funding Rate is interpreted as follows:

  • When the Funding Rate is positive, longs pay shorts. This usually happens when the Perpetual Contract price is higher than the Mark Price.

  • When the Funding Rate is negative, shorts pay longs. This usually happens when the Perpetual Contract price is lower than the Mark Price.

Indicator Triggers:

Funding cross up/down the level

When the funding rate cross up the level 0.006% with a period of 1, a short signal is triggered.
The funding rate cross up the level 0.006% at the red arrow, the bot triggers a short signal.

Funding sustain above the level

When the funding rate stay above the level 0.002% during at least 6 hours (6x1 hour candles), with a 7 SMA period, the bot will trigger a short signal.
When the funding rate stay above the level 0.002% during at least 6 hours (6x1 hour candles), with a 7 SMA period, the bot will trigger a short signal.
Once the funding rate cross up the level 0.002%, a counting starts waiting for 6 candles closes above the level. At the second red arrow, 6 candles closed above 0.002%, a short signal is triggered.

In zone

Place a long signal when the funding rate enter the [-0.04;-0.0015] zone
A long signal is triggered at the green arrow, once the funding rate enters the green zone [-0.015;-0.04], after candle close

Notes

  • Cross-Reference with Spot Price: Always check the spot price alongside funding rates to get a clearer picture of market sentiment and potential price movements. For example, if the funding rate is positive and the spot price is rising, it confirms bullish sentiment. However, if the funding rate is positive but the spot price is stagnant or falling, it could indicate that the market is overleveraged on the long side and a correction might be imminent.

  • Timing Trades: Pay attention to changes in funding rates to time your trades more effectively. For instance, a sudden spike in positive funding rates might suggest an imminent price drop as overleveraged longs are forced to close positions. Similarly, a sharp increase in negative funding rates could precede a price rebound as shorts cover their positions. Use these signals to fine-tune your entry and exit points.

  • Identify Divergences: Look for divergences between funding rates and spot price movements. If the funding rate is positive but the spot price is declining, it suggests that longs are increasingly vulnerable to a squeeze. Conversely, a negative funding rate with a rising spot price could indicate that shorts are under pressure and a short squeeze might occur.

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