I wanted to give a brief explanation for friends asking what the funding fee is. In leveraged trading, there is a fee you pay as long as you keep your position open, called the funding fee. Typically, you pay it approximately every 8 hours, so three times a day is normal, but sometimes during high market volatility, it can happen four times.

When someone asks what the funding fee is, they are actually referring to a simple mechanism. The price difference between the spot market and the futures market determines this fee. If the spot price is higher than the futures price, it indicates that short positions are dominant. In such cases, the funding rate becomes negative, and the larger this gap, the more short traders have to pay.

To understand how funding works, it’s important to know that it involves a transfer of fees between the long and short sides to maintain market balance. Until the price difference between spot and futures stabilizes, the side with more weight pays, and the other side receives.

A tip: instead of taking direct trades based solely on funding rate data, it’s more sensible to use it as an indicator. Since the market often moves contrary to the majority, be cautious when forming your strategy based on this metric. Once you understand how to calculate the funding fee well, you can manage your risks more effectively.