How do funding rates impact trading costs in crypto perpetual markets?
Funding rates in crypto perpetual exchanges are periodic payments exchanged between traders holding long and short positions. If the funding rate is positive, long traders pay short traders, and if negative, short traders pay long traders. These rates are designed to keep the perpetual contract price in line with the spot price of the underlying asset. For traders holding positions over extended periods, funding rates can add significant costs or provide additional income. If the funding rate is high, holding a position for a prolonged period can become expensive, influencing a trader’s strategy. Traders need to account for funding rate fluctuations to manage their costs effectively.
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