What are finance rates?
THAT financing rates (in French financing rate), plays a special role in margin trading. Especially in derivative markets such as futures, also called Futures (Available e.g. on Bitten).
To put it simply, finance rates are in trade fees exchanged between buyers and sellers futures contracts, adjusted periodically to align the contract price with the spot market (spot market).
For starters, the spot market and the perp (or futures) market two separate markets!
What is the financing rate used for?
The purpose of funding rates in futures trading is to maintain balance between futures prices And spot market prices. This helps promote market stability.
The finance rate is a periodic payment made by long traders to short tradersor vice versa, depending on the difference between futures and spot market prices.
The calculation of the financing interest takes into account interest and premium/discount of the futures contract in relation to the spot price.
This rate can be positive or negative and changes depending on market conditions.
Formula:
Funding Rate= (Derived contract price – Spot price) + adjusted factors.
The interpretation of the funding rate is therefore very important in understanding market sentiment and can indicate whether traders are predominantly long or short.
Positive (or increasing) financing rate
The market is buying, optimism reigns.
Negative financing rate (or falls)
The market sells and takes profits.
On which platforms can I find financing rates?
Tracking the funding ratio (FR) is critical to understanding market dynamics. Especially for those interested cryptocurrency futures trading.
Here is a selection of the most useful platforms for consulting the financing rate:
Funding rates on Coinglass
Coinglass is a platform that offers a comprehensive overview of financing rates across different exchanges and different cryptocurrencies.
To view FR on Coinglass, simply click section “Financing rate”. on the side.
There you will find graphs that show current financing rates And historic for different cryptocurrencies, allowing for analysis of funding rate trends over different periods.
The visualization of this funding rate is also available in the form of a heatmap where around thirty levels are exposed. altcoins.
Fuding rates on Coinalyze
Coinize is a technical analysis tool well known to cryptocurrency traders.
To access the funding rate on Coinalyze, select the cryptocurrency you want. Then look for the option that allows you to display the FR on the graph.
Coinalyze provides detailed charts where the indicator is superimposed on the asset price. This thus enables a direct comparative analysis between Financing rateTHAT Price Actionand other indicators such as‘Open interest.
Fuding prices on Velo
Velo Datalesser known and yet very powerful, provides insight into market sentiment that can be complements the analysis of the financing rate.
The data that the Velo platform provides can enrich the understanding of the dynamics we are in. And thus adapt your trade accordingly.
Funding rates on TradingView
Trade display is widely recognized for its tools oftechnical analysis and its interactive graphics.
Although TradingView does not directly provide Funding Rate charts, users can find custom community-created indicators that plot FR on price charts.
To find them, use the indicator search function and type “Funding Rate”. This allows for a visual analysis of the funding rate compared to others technical indicators on the same graph.
Traders can use funding rates to optimize their market entries and exits, especially if leveraged. And more generally their strategy, if they are involved scalpers (much less often) el day trading.
ONE high degree of financing can indicate a overbought market, while a low rate can signal an oversold market. This is information that can be verified with others indicators as RSI (Relative Strength Index).
In short, by observing variations in financing rates, traders can adjust their plan. For example, by taking an opposite position when the rate reaches extremes.
Read the market using Funding Rate and Open Interest:
Using an indicator alone to develop a trading strategy is far from sufficient. In our case with Financing rateit combines very well with another indicator: Open interest.
To put it simply, open interest corresponds to the number of unliquidated open contracts on the market.
By observing the variations ofOpen interest rate, linked to the financing rate and the movement in the price of the asset, it is then possible to know more precisely how the market reacts. If it is long, short, takes profit, etc.
For example, if a level of Funding Rate falls while Open Rate rises, may indicate an increase in shorts And takes profit purchasing positions.
Advantages and disadvantages of financing rates
Financing rates provide several benefits to trading, particularly for leveraged markets.
Advantage:
- Indicator of market sentiment: Funding rates reflect general market sentiment, allowing traders to infer whether the market is predominantly long or short.
- Contradictory Trading Options: Extreme funding ratios can signal contrarian trading opportunities where it can be profitable to take a position contrary to the majority.
- Risk management : Understanding funding ratios helps manage risk, indicating when the market may be overbought or oversold.
- Long-term strategy: For long-term traders, funding rates can indicate favorable periods to enter or exit the market.
Disadvantages
However, financing rates also have certain disadvantages:
- Complexity: For beginners, understanding and correctly interpreting finance rates can be complex.
- Information delay: As they are calculated periodically, there may be a delay in reflecting market changes.
- Increased trading costs: In some cases, high funding rates can significantly increase the cost of maintaining a position.
- Liquidation risks: For traders using high leverage, unexpected changes in funding rates can increase the risk of liquidation.
Our opinion on finance rates
Overall, financing rates are a relevant indicator i leveraged trading on platforms such as Bitten. They provide valuable insight into market sentiment and trader behaviour.
Of course, to maximize the usefulness of this indicator, it is important to use it with caution. And above all in addition to other indicators, such asOpen interest (OI).
Their ability to specify conditions for buying or selling positions can be extremely useful for traders who wish to do so optimize their strategies and to manage their risks.
However, it is important for traders, especially beginners, to understand how to interpret these finance rates.
