The funding rate is a periodic payment between traders holding long and short perpetual futures positions. It keeps the contract price aligned with spot. Positive funding means longs pay shorts – the market is bullish and longs dominate. Negative funding = shorts pay longs, and sentiment is bearish.
Funding settles every 8 hours. Values around +0.01 % are neutral. Persistently high values (>+0.05 %) signal overheating, while deeply negative values often mark capitulation.
Annualizing explains why anyone cares: 0.01 % eight times a day is roughly 11 % a year, and 0.05 % is over 50 %. Holding a long through an overheated week costs real money — and that cost is often what finally bleeds off the excess, even when spot does not move.
An extreme reading is not a signal on its own; the turn is. Funding can stay high for weeks of a strong trend. Only when it flips from positive to negative (or back) at a price that has not moved does it mean positions have changed hands. Read it next to open interest: rising funding with rising open interest is fresh leverage, while rising funding with falling open interest is shorts closing.
Source: current values from the Binance, Bybit and OKX exchanges. The chart shows Binance funding history (a daily average of three settlements) alongside the daily BTC close.