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#bitcoin 
funding thread.
I thought this was common knowledge by now, but this thread has been requested so so much.
Here we go.
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funding thread.I thought this was common knowledge by now, but this thread has been requested so so much.
Here we go.
1/
BTC perpetual swap futures have to follow underlying spot instruments.
For example the BitMEX perp tracks the bitcoin price based on an index
that consists of off exchanges like Coinbase, Bitstamp, Kraken, ...
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For example the BitMEX perp tracks the bitcoin price based on an index
that consists of off exchanges like Coinbase, Bitstamp, Kraken, ...
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Just so we're on the same page:
spot price = current price for which you can buy physical bitcoin with immediate delivery.
So when you buy BTC on Coinbase for example, that's spot price that you're paying.
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spot price = current price for which you can buy physical bitcoin with immediate delivery.
So when you buy BTC on Coinbase for example, that's spot price that you're paying.
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But perp swaps tend to be more volatile (liqs) than spot.
So there has to be a mechanism to keep the perp swap in line with spot price.
This is where funding comes in.
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So there has to be a mechanism to keep the perp swap in line with spot price.
This is where funding comes in.
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When the perp moves away too much from spot price, you'll have to pay funding.
You can look at this as some sort of interest rate that is paid out every 8H (on most exchanges)
to people on the opposite side of the trade.
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You can look at this as some sort of interest rate that is paid out every 8H (on most exchanges)
to people on the opposite side of the trade.
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When perp trades below spot price, funding goes negative, shorts pay longs.
When perp trades above spot price, funding goes positive, longs pay shorts.
It's an incentive to close your position, bringing balance to price once again.
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When perp trades above spot price, funding goes positive, longs pay shorts.
It's an incentive to close your position, bringing balance to price once again.
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But this makes it look like in some cases there more longs than shorts or vice versa.
That's not possible though, because derivatives exchanges in crypto are all P2P.
Longs always = shorts.
When it comes to funding we're talking about AGGRESSIVE participants.
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That's not possible though, because derivatives exchanges in crypto are all P2P.
Longs always = shorts.
When it comes to funding we're talking about AGGRESSIVE participants.
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What are aggressive participants?
There are 2 types of orders:
passive or active - limit or market.
Aggressive orders are market orders.
They are taking liquidity from the books.
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There are 2 types of orders:
passive or active - limit or market.
Aggressive orders are market orders.
They are taking liquidity from the books.
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Funding is thus a sentiment indicator.
When the market is moving up, people tend to market long (hype).
That's when funding goes up.
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When the market is moving up, people tend to market long (hype).
That's when funding goes up.
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Consistently high funding indicates that going long is the crowded trade.
Thus it is considered bearish (euphoria).
Not only do these people pay just to stay in their positions,
we can also assume that there are large liquidation levels being created.
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Thus it is considered bearish (euphoria).
Not only do these people pay just to stay in their positions,
we can also assume that there are large liquidation levels being created.
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Here's a cheat sheet to guide you with trading.
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Here is a BitMEX funding indicator that you can use on Tradingview.
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However something changed the past 2 years.
BitMEX used to be the king of derivatives exchanges, so only their funding rates mattered.
These days you really have to look at all the top exchanges to get an idea of what's going on in the market.
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BitMEX used to be the king of derivatives exchanges, so only their funding rates mattered.
These days you really have to look at all the top exchanges to get an idea of what's going on in the market.
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2 great places where you can find funding rates are:
here (scroll to the bottom):
https://www.bybt.com/
and here:
https://coinalyze.net/futures-data/global-charts/bitcoin/
14/fin
here (scroll to the bottom):
https://www.bybt.com/
and here:
https://coinalyze.net/futures-data/global-charts/bitcoin/
14/fin
P.S.
That was a lot of writing I hope I didn't fuck anything up.
If I did, let me know.
That was a lot of writing I hope I didn't fuck anything up.
If I did, let me know.
