A periodic payment between long and short perpetual futures holders that pulls the perp price toward spot; positive means longs pay shorts.
Funding is typically exchanged every 8 hours. When the perp trades above spot, funding is positive and longs pay shorts, discouraging excess long leverage. When it trades below, shorts pay longs.
Extreme funding is a crowding signal. Very high positive funding means longs are paying a lot to stay in and are vulnerable to a liquidation cascade.
Example: funding is 0.05% per 8 hours (about 55% annualized). A $50,000 long position pays $25 every 8 hours, or $75 a day, to hold.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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