Topic: Can someone explain "Funding Rate" in layman's term? (Read 35 times)

Maus0728

legendary

Activity: 1904

Merit: 1563

Okay. I've come across a new term called "Funding Rate," and I believe I understand the premise that it determines overall trader sentiments, whether bullish or bearish.

However, I find it difficult to understand what these lines quoted below means and how the "LONG pays SHORTS and vice versa" is related to maintaining the closeness of the futures price and spot price (or index price?)?

Quote from: https://blog.kraken.com/post/3075/quick-primer-on-funding-rates/

Because perpetual futures contracts never settle in the traditional sense, market operators need a mechanism to ensure that the contract and index prices would periodically converge. Funding rates serve this role.

Bitcoin Forum>Economy>Trading Discussion

Jump to: