# Funding rates relative to price trend

Funding rates are the mechanism by which derivatives exchanges close the gap between spot and perpetual swap markets.

{% hint style="info" %}
When the price of perpetuals trades above the index price, the funding rate is positive.  Vice versa, when the price of perpetuals below the index price, the funding rate is negative.  

When more people take one side of the trade, the funding rate incentivizes market participants to take the other side of the trade.
{% endhint %}

Positive funding rates suggests speculators are bullish and long traders pay funding to short traders.  Highly positive funding rates suggests that there may be excessive leverage in long positions.

Negative funding rates suggests speculators are bearish and short traders pay funding to long traders.  Highly negative funding rates suggests that there may be excessive leverage in short positions.

| Funding rate                                        | Price trend | Implications                                                                   |
| --------------------------------------------------- | ----------- | ------------------------------------------------------------------------------ |
| Significantly positive (and becoming more positive) | Rising      | Over-leveraged long positions, potential bearish reversal                      |
| Significantly positive (and becoming more positive) | Falling     | Traders buying the dip on leverage, exposing themselves to a long squeeze      |
| Significantly negative (and becoming more negative) | Falling     | Over-leveraged short positions, potential bullish reversal                     |
| Significantly negative (and becoming more negative) | Rising      | Traders shorting the spike on leverage, exposing themselves to a short squeeze |

Sources of perpetual swaps (non-expiring futures) funding rates data are:

* [Coinglass](https://www.coinglass.com/FundingRate)
* [Cryptoquant](https://cryptoquant.com/asset/btc/chart/derivatives/funding-rates?exchange=all_exchange\&window=DAY\&sma=0\&ema=0\&priceScale=linear\&metricScale=linear\&chartStyle=column)
* [Glassnode](https://studio.glassnode.com/metrics?a=BTC\&category=Derivatives\&m=derivatives.FuturesFundingRatePerpetualAll)
* [ViewBase](https://www.viewbase.com/funding)


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