How to apply funding rates in cryptocurrency futures trading in practice?

In cryptocurrency futures trading, the funding rate refers to the funding exchange fee that must be paid or received when holding long or short positions. It is typically calculated based on a certain percentage rate and is determined by market supply and demand and the leverage settings of the contract. The calculation method of the funding rate varies, but settlement is usually done every eight hours.

In practical application, the positive or negative funding rate can be used to determine the market sentiment and liquidity. When the funding rate is positive, it indicates that long positions are paying short positions, which may mean that the market is in an overbought state, and the bullish trading is too intense, possibly requiring a correction or adjustment. Conversely, when the funding rate is negative, it indicates that short positions are paying long positions, which may mean that the market is in an oversold state, and the bearish trading is too intense, possibly requiring a rebound or adjustment.

In addition, the funding rate can also be used to calculate trading costs and returns, especially for traders with long-term positions. If the holding time exceeds the funding rate settlement time, the corresponding funding cost needs to be borne. Therefore, traders need to consider the impact of funding rates on trading plans to make wiser choices between trading costs and returns.

Overall, understanding and applying the funding rate can help traders better grasp market sentiment and trends, while also reducing trading costs and risks.