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3 reasons why Bitcoin traders keep a close eye on the futures funding rate

Analysts frequently correlate a high perpetual futures funding rate with market crashes, but is this the best way to analyze the metric?
Futures contracts trading has grown immensely over the past year, and proof of this comes from the total rise in open interest. Open interest is the total number of outstanding contracts, and the figure has risen from $3.9 billion to the current $21.5 billion in six months, a 450% increase.Sometimes traders assume that a high or low funding rate and soaring open interest indicate a bullish market, but as Cointelegraph has explained before, this is not the case. This article will take a quick look at the funding rate and how traders interpret the metric when trading perpetual futures contracts.The funding rate can be a bull and bear indicatorPerpetual contracts have an embedded rate usually charged every eight hours to ensure there are no exchange risk imbalances. Even though both buyers’ and sellers’ open interest is matched at all times, their leverage can vary. When longs are demanding more leverage, they will be the ones paying the fee. Therefore, this situation is interpreted as bullish. The opposite holds when shorts are using more leverage, thus causing a negative funding rate.Whenever traders use high levels of leverage, analysts point to the risks of cascading liquidations. Although this holds true, this situation can unfold for weeks, and sometimes deleverage happens by itself. Therefore, such an indicator should not be used to predict local tops, as data will show.Bull markets …
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