Funding rate is a mechanism used in perpetual contracts to keep prices aligned with the spot price: when the contract price is higher than the spot price, longs pay shorts, and vice versa. A consistently high funding rate indicates an overcrowded long position, making it more likely for cascading liquidations to occur during a price drop; however, it only reflects positioning bias and cannot be used alone to predict price direction. When analyzing funding rates, always consider them alongside open interest and liquidation price distribution. This is for personal reference only and does not constitute investment advice.
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