Funding rate question

[Oshosondy]

This question come my mind because nobody taught me crypto trading, I know all by myself. There was a day that I opened a short position with a shit coin pair that has increased in price significantly. This is very dangerous because the coin can still double or do 2x more within minutes or in few hours just like shit coins, but I thought was so lucky as the coin dropped significantly. I gained slightly more than $200, but when I went to balance, my balance remained almost the same. I thought the exchange has cheated me, but I do not wait or have any second thought than to contact the exchange customer care, they told me about funding rate. I went to see the funding rate on the trading history, it was slightly more than $200, so I gained almost nothing on a position that I thought I gained slightly more than $200

[Floczy]

That's actually risky, but it's a good one you caught it

About the exchange, you know I personally and a lot of traders out there usually learn more after losses, it's like part of trading,

But in this one I will assume you where quite carried away on the price movements, and expectations that you cared less about their funding rates and fees, this actually happens sometimes to me as well, especially with a big contribution from FOMO, once I see a position I overlook some of these important informations I need to know about. It's better we learn and start observing these things.

So you made profits for you exchange I guess 

[tvplus006]

...I went to see the funding rate on the trading history, it was slightly more than $200, so I gained almost nothing on a position that I thought I gained slightly more than $200

This happens when trading exclusively with new tokens, and funding can be very high, as a rule -2%, which is also almost always charged by the exchange every hour. Trading coins such as BTC, ETH SOL and other top coins that have high liquidity, such high funding never happens, even on dump/pump.

[sergiorus]

This question come my mind because nobody taught me crypto trading, I know all by myself. There was a day that I opened a short position with a shit coin pair that has increased in price significantly. This is very dangerous because the coin can still double or do 2x more within minutes or in few hours just like shit coins, but I thought was so lucky as the coin dropped significantly. I gained slightly more than $200, but when I went to balance, my balance remained almost the same. I thought the exchange has cheated me, but I do not wait or have any second thought than to contact the exchange customer care, they told me about funding rate. I went to see the funding rate on the trading history, it was slightly more than $200, so I gained almost nothing on a position that I thought I gained slightly more than $200

i didn't find any question in your post but yep this is what happens when something is being shorted to the ground by a crowd.
shorters or longers pay or get paid depending on if they're the majority (pay) or the minority (get paid).
and if shorters significantly overweight longers, the funding rate can be nasty, especially since it's paid every hour or every few hours, depending on platform rules.
in extreme cases you may end up getting liquidated even if the price hasn't moved at all.

[AVE5]

...I went to see the funding rate on the trading history, it was slightly more than $200, so I gained almost nothing on a position that I thought I gained slightly more than $200

This happens when trading exclusively with new tokens, and funding can be very high, as a rule -2%, which is also almost always charged by the exchange every hour. Trading coins such as BTC, ETH SOL and other top coins that have high liquidity, such high funding never happens, even on dump/pump.

Hmm there's really a lot of studies required in this trading stuff. One will think you've learnt more than enough meanwhile that which you know in the trading could just be your beginners point.
When it comes to this trading, I only see bitcoin and the few notable coins as option to deal with. I just stays off from those newly launched coins because I don't truth its potential value in the first place.
From the experience of the Op and what you've just said about this new coins and their charges in the exchange even have to scare me more to risk.

[noorman0]

Shitcoin pairs (meaning memecoins?) typically have the highest funding costs due to their high volatility. This is useful for balancing derivatives and spot market prices, or in other words, mitigating the impact of excessive position volume in one market type.

[BitMaxz]

Well, some coins that I trade before, I thought the exchange was stealing my profit because I made a profit, but then it suddenly disappeared until I learned about the funding rates.

That is why trading with a random coin without checking the current coin trading rules and funding rates chart, you will always end up surprised to make a profit suddenly without you knowing or losing even if you made a profit.

It only happens on projects, honestly, and cheap coins that suddenly pump and then dump because they take advantage of arbitrage to take the funding rates.

You better stick with high market cap coins.

[Zaguru12]

It only happens on projects, honestly, and cheap coins that suddenly pump and then dump because they take advantage of arbitrage to take the funding rates.

You better stick with high market cap coins.

I will be pointing to an exchange directly which has had one to suffer about this for a long time and this is the MEXC exchange. Seriously funding rates are usually that which you hardly understand prior to when you’re learning trading you only experience it during real trading.

For me there the exchanges surety for actually listing those shitcoins because we all know that most of the shitcoins actually follow similar Pattern which is a long pump and a prolonged dump. So I am used to shorting most of them most especially those which carries large number as suffixes (100, 1000 or any of these), you could earn more than 300 from them without earning anything. I usually placed it like it’s just the exchange not wanting anyone to hold the coin for long.

Now I don’t trade them shit coins but for anyone trading them I think funding rates should be part of their analysis before trading that pair

[Bitcoin_Arena]

When shorting shitcoins, especially those that have just been listed (they usually first pump for a few hours and then start dumping). It's very important first you look at the funding fees and the intervals the funding is going to happen (for some shitcoins it's hourly) and then the 24-hour turnover in USDT.

Funding fees can even go up to 2-3%, which is the cap for most exchanges. If you hold the position for long and it's at a hourly or 4 hour internal, your profits are going down the drain

Solution?

1. Avoid trading pump-and-dump shitcoins with low volumes. Everyone knows that they are going to dump anyway, and so almost everyone is trying to short.

[JeffBrad12]

I found out about funding rate when I was trying to delta neutral hedge.
Generally speaking funding rate becoming ridiculous only in new market and shitcoin market because price is very volatile and the gap between spot and derivative become wider.

I usually don't think about it that much when trading bitcoin. When trading bitcoin sometime the funding rate changes from negative to positive occasionally, kind of negating the effect.

[dwyane36]

When shorting shitcoins, especially those that have just been listed (they usually first pump for a few hours and then start dumping). It's very important first you look at the funding fees and the intervals the funding is going to happen (for some shitcoins it's hourly) and then the 24-hour turnover in USDT.

Funding fees can even go up to 2-3%, which is the cap for most exchanges. If you hold the position for long and it's at a hourly or 4 hour internal, your profits are going down the drain

Solution?

1. Avoid trading pump-and-dump shitcoins with low volumes. Everyone knows that they are going to dump anyway, and so almost everyone is trying to short.

When the funding fee suddenly jumps to a few percent and exchanges start charging it hourly, this is usually accompanied by high trading volumes, though there’s obviously not much liquidity on that trading pair. Personally, I most often see a -2% funding rate on exchanges during altcoin pumps, though there have been times when it reached -4%. At such times, it’s really better to avoid trading these assets, but that doesn’t mean you can’t make money on them. If you entered a long position before the pump or dump scheme began, you can profit from the funding fee. The key is not to be greedy and to close the trade in time.

[Bitcoin_Arena]

When the funding fee suddenly jumps to a few percent and exchanges start charging it hourly, this is usually accompanied by high trading volumes, though there’s obviously not much liquidity on that trading pair. Personally, I most often see a -2% funding rate on exchanges during altcoin pumps, though there have been times when it reached -4%. At such times, it’s really better to avoid trading these assets, but that doesn’t mean you can’t make money on them. If you entered a long position before the pump or dump scheme began, you can profit from the funding fee. The key is not to be greedy and to close the trade in time.

To be honest, I have never seen -4%. Most of the exchanges I have used have a cap of -3%. Which particular crypto exchange do you use? That can be a very sweet arbitrage opportunity right there
I use these tools to check funding rates across... Nothing close to even -3% right now

1. https://coinalyze.net/funding-rates/?order_by=6_USDT_stablecoin_m&order_dir=asc
2. https://www.coinglass.com/FundingRate

[Karl_3000]

I usually don't think about it that much when trading bitcoin. When trading bitcoin sometime the funding rate changes from negative to positive occasionally, kind of negating the effect.

This is not the reason you do not think about it, most of the time, funding rate for bitcoin is positive. The reason you do not think about it is that the funding rate for bitcoin is very small. The highest that I have seen before is 0.01% which is very small. Some people that are trading huge amount of money may not see it as small if they want to hold the position, they will use the future market instead of the perpetual.

[JeffBrad12]

I usually don't think about it that much when trading bitcoin. When trading bitcoin sometime the funding rate changes from negative to positive occasionally, kind of negating the effect.

This is not the reason you do not think about it, most of the time, funding rate for bitcoin is positive. The reason you do not think about it is that the funding rate for bitcoin is very small. The highest that I have seen before is 0.01% which is very small. Some people that are trading huge amount of money may not see it as small if they want to hold the position, they will use the future market instead of the perpetual.

That is one of the reason and that's true. I don't think much about it because beside the funding rate that usually going positive, annualized funding rate requires is low.
However that only hold truth when you are trading low leverage, when you are trading 100x in some rare occasion for example, you gonna pay (size x leverage) x 0.01%. Still pretty high.

[dwyane36]

To be honest, I have never seen -4%. Most of the exchanges I have used have a cap of -3%. Which particular crypto exchange do you use? That can be a very sweet arbitrage opportunity right there
I use these tools to check funding rates across... Nothing close to even -3% right now

1. https://coinalyze.net/funding-rates/?order_by=6_USDT_stablecoin_m&order_dir=asc
2. https://www.coinglass.com/FundingRate

Such funding fees are extremely rare and occur only during abnormal market movements. For example, on the Bybit exchange, a -4% funding fee occurred at least a couple of times on the COAI/USDT trading pair during a sharp price surge last October. As shown in the screenshot below, the funding fee jumped sharply to -4% at that moment and then stabilized at -2% for several hours.

[Emitdama]

Well, some coins that I trade before, I thought the exchange was stealing my profit because I made a profit, but then it suddenly disappeared until I learned about the funding rates.

This funding rate must be new because I haven't heard of this before and then a couple of threads are created lately with the concerns of it. But it is seems this feature is only for selected cryptos. You mentioned stealing there mate but exchanges literally are robing us even without the funding rate because they usually has a higher trading and other fees inside their platforms.

It only happens on projects, honestly, and cheap coins that suddenly pump and then dump because they take advantage of arbitrage to take the funding rates.

All crypto are projects though. Maybe you mean to say newer projects? It hard to arbitrage the type of coins you mentioned there because they are highly volatile and changes can happen so quickly. But who is the ones that take advantage here? The traders? And it seems that the funding rate can also be an advantage if pulled well. Hhmm.. interesting. But with or without arbitrage, pumps and dumps still can occur for some coins.

[Alphakilo]

Well, some coins that I trade before, I thought the exchange was stealing my profit because I made a profit, but then it suddenly disappeared until I learned about the funding rates.

This funding rate must be new because I haven't heard of this before and then a couple of threads are created lately with the concerns of it. But it is seems this feature is only for selected cryptos. You mentioned stealing there mate but exchanges literally are robing us even without the funding rate because they usually has a higher trading and other fees inside their platforms.

It only happens on projects, honestly, and cheap coins that suddenly pump and then dump because they take advantage of arbitrage to take the funding rates.

All crypto are projects though. Maybe you mean to say newer projects? It hard to arbitrage the type of coins you mentioned there because they are highly volatile and changes can happen so quickly. But who is the ones that take advantage here? The traders? And it seems that the funding rate can also be an advantage if pulled well. Hhmm.. interesting. But with or without arbitrage, pumps and dumps still can occur for some coins.

The type of trade you involve yourself in determines if you get to encounter funding rates, because I think spot trading or fixed maturity features are exempt to this funding rate issues.

In the future it would be wise to always check the funding rate of a more volatile coin and countdown timer in your trading screen before you know when to open your short position and since funding rate has now been made open as a conscious effort to help traders be aware, always factor in that a trade could require funding rate fees before you open your short position still, as a risk management practice to stay safe and avoid losses that are unforseen.

[Bitcoin_Arena]

Such funding fees are extremely rare and occur only during abnormal market movements. For example, on the Bybit exchange, a -4% funding fee occurred at least a couple of times on the COAI/USDT trading pair during a sharp price surge last October. As shown in the screenshot below, the funding fee jumped sharply to -4% at that moment and then stabilized at -2% for several hours.

Indeed, it's a very rare scenario I have personally never seen, -4%/4%. I saw -3% a few times last year, and interestingly, it was still on Bybit. I think it was probably a bit of an oversight from them, and they had to fix it after those couple of anomalies. The floor/cap for that contract is now at -2%/2%, which explains why the funding rate was at -2% right after those two fours.

[BitMaxz]

This funding rate must be new because I haven't heard of this before and then a couple of threads are created lately with the concerns of it. But it is seems this feature is only for selected cryptos. You mentioned stealing there mate but exchanges literally are robing us even without the funding rate because they usually has a higher trading and other fees inside their platforms.

Actually, it's not new; it has existed since crypto exchanges added futures, and it was first introduced on BitMEX around May 2016 and later added to other known exchanges like Binance and OKX.
It is not the same as trading stocks on FX brokers with spreads or flat commission fees. Trading futures in crypto has its own tiered trading fees and funding fees.

All crypto are projects though. Maybe you mean to say newer projects? It hard to arbitrage the type of coins you mentioned there because they are highly volatile and changes can happen so quickly. But who is the ones that take advantage here? The traders? And it seems that the funding rate can also be an advantage if pulled well. Hhmm.. interesting. But with or without arbitrage, pumps and dumps still can occur for some coins.

Not only new projects but also most of the altcoins with high volatile funding fees you can just easily check their data since most exchanges show these funding rates under trading data.

Actually, arbitrage is unaffected by pumps and dumps, regardless of how volatile they are, because they purchased assets on another exchange while shorting on a different exchange, which has little to no impact on the price of the coin and is only concerned with funding fees.

You better research more how arbitrage works because it seems you are new to this. Arbitrage traders have nothing to do with pump and dumps; they can still make a profit in any direction by just holding the coin and position.

[dwyane36]

Indeed, it's a very rare scenario I have personally never seen, -4%/4%. I saw -3% a few times last year, and interestingly, it was still on Bybit. I think it was probably a bit of an oversight from them, and they had to fix it after those couple of anomalies. The floor/cap for that contract is now at -2%/2%, which explains why the funding rate was at -2% right after those two fours.

No, it's not an oversight on their part. They adjust the funding fee this way from time to time. I mean, it’s normal for a contract’s floor/cap to change, since Bybit itself reserves the right to adjust them at any time in the event of high volatility for a specific contract.