Funding spike
What does a brief jump in perpetual funding tell you about who is paying to stay long?
In plain words
A funding spike is a short-lived rise in the regular payment between holders of perpetual futures positions. When the rate is positive, longs pay shorts; a spike means longs are paying far more than usual every funding interval to keep their positions open.
Why it matters
Funding spikes show that leverage has crowded onto one side, raising the running cost of holding and signalling fragility. Traders using perpetuals face sudden carry costs, and a crowded long side can unwind sharply if price stalls, though the rate alone does not reveal how large those positions are.
In a real week: ETH, week of 10 February 2020
In the week of 10 February 2020, ETH funding averaged 0.1499% per eight hours and spiked to 0.3672%, well above the week's low of 0.0421%, while ETH rose 13.27% with its best day 2020-02-12 at 12.27%. Volume ran 3.72 times the prior 12-week average, and longs were paying heavily to hold into the rally.
A common mistake
Reading a funding spike as a reliable sell signal. It marks the cost of holding, not the size of positions or the moment they will close.