Cryptocurrency trading: What is the Funding/Financing Fee in Trading?
In crypto trading, funding rates/financing fees refer to periodic payments traders pay to go long or short.
The rate paid depends on the difference between the perpetual contract prices versus those offered by exchanges.
Often, the objective of financing fees is to keep the index price as close as possible to the spot rate.
As such, funding fees can be a gauge to measure market sentiment among leverage crypto traders and the general direction of their bet.
A higher funding/financing fee could point to a peaking market, a likelihood that crypto prices will likely fall.
On the other hand, negative funding may suggest undervaluation and possibilities of correction higher.