π°Funding Rates and Open Interest
Funding Rates
Funding rates are essential in the perpetual contracts market, ensuring the price of these contracts aligns with the underlying asset's spot price. These rates, which can be positive or negative, adjust based on the gap between the perpetual contract price and the spot price. A positive rate means traders with long positions pay those with short, discouraging overly costly long positions when the contract price exceeds the spot price. Conversely, a negative rate involves solvers with short positions paying long position holders, deterring costly short positions when the contract price falls below the spot price.
Core's funding rates rely on 'solver-driven pricing', with calculations influenced by diverse market interactions, promoting competitive, market-reflective rates. It's critical for traders to understand these rates, as they impact the cost of maintaining positions and, consequently, trade profitability.
Open Interest
Open Interest (OI) is a vital indicator of market activity and liquidity, representing the total value of perpetual contracts on the platform. The OI ratio, calculated as current OI divided by available OI, is a metric some use to understand market activity/sentiment.
Trading with Funding Rates and OI
Strategic trading on Core involves monitoring funding rates and OI. Understanding these metrics allows traders to make informed decisions, optimizing their strategies in a dynamic market.
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