Open Interest & Funding Rates
Last updated
Last updated
Open interest and funding rate are both important metrics to keep an eye on when trading perps, and can significantly impact your trading performance.
Open interest refers to the total value of outstanding contracts in a perpetual futures market. It represents the value of active positions — both long and short — that have not yet been settled or closed.
Open interest can be viewed as a measure of market activity. High open interest indicates a greater level of engagement by traders, suggesting a liquid and active market. Conversely, low open interest may signal lower activity or less desire to trade a particular contract.
Funding rates are a mechanism used to keep the perp price aligned with the underlying asset's spot price. When there is an imbalance between the value of long and short positions (reflected by open interest), funding rates adjust to incentivize traders to take the opposite side of the market.
If open interest shows a larger value of long positions, the funding rate is positive. Longs pay shorts, encouraging traders to open short positions and restore parity between the perp and spot price of the underlying.
If open interest shows a larger value of short positions, the funding rate tends is negative. Shorts pay longs, encouraging more long positions.
To learn how funding rates are calculated within the Variational protocol, visit the section of the docs.