So, I heard that funding rates help keep perpetual market prices of Bitcoin and altcoins in line with spot market prices. But how come the futures market doesn’t have funding rates and it’s still a decent trading space?
Wait, what? Futures don’t have funding rates? That’s kinda wild. But if I look at the futures section, aren’t most coins perpetuals? Just trying to wrap my head around this. From what I found, some futures with expiration dates skip funding rates since they aren't perpetual.
Futures prices and spot prices definitely differ. In my experience, futures can stray more from spot than perpetuals do, but they still move similarly. Like, with a new coin gaining value, it might show negative funding rates. I’ve seen some go below -2%. Traders jump on long positions hoping to bank that 2% if prices keep rising.
Key thing to remember is futures have expiration dates, whereas perpetuals don’t. Futures don’t impact the spot market, but funding rates in perpetuals help keep prices aligned. If perpetual prices drop below spot, funding rates go negative and vice versa.
Exactly! Without expiration dates in perpetuals, traders can hold positions forever unless liquidated. So, there’s gotta be a way to keep prices close to spot prices, which is why funding rates exist. If no one wants to close positions, prices could drift.
That’s how arbitrage traders play the game, right? They use both perp and spot markets. But usually, that 2% gap doesn’t show up in Bitcoin or major coins. I’ve seen it more like 0.01% or less. New coins can really hit those numbers based on the gap.
The logic makes sense. Traditional futures expire, so they tend to converge back to spot prices as expiry approaches. Perpetuals don’t have that anchor, so funding rates are key to keep everything in check. It’s like a balancing act.
Right! Futures are like trains with a final stop, but perpetuals just keep going. Without an expiration, funding rates are like the brakes that keep traders from going off track. If perpetual prices rise above spot, longs pay shorts, which helps stabilize things.