perp-funding-basis

Perpetual Funding Rate & Basis Trading

Overview

Analyze perpetual futures funding rates and spot-futures basis to identify carry trade opportunities, market positioning extremes, and directional sentiment signals. Funding rates are the single most important microstructure indicator in crypto derivatives — they reveal real-time leverage positioning and crowd sentiment.

Core Concepts

1. Funding Rate Mechanics

Perpetual futures have no expiry date. Instead, a funding rate is exchanged between longs and shorts every 8 hours (on most exchanges) to keep the perpetual price anchored to the spot price.

If perp price > spot price → funding rate positive → longs pay shorts
If perp price < spot price → funding rate negative → shorts pay longs

OKX funding rate schedule: payments at 00:00, 08:00, 16:00 UTC

Annualized funding rate:

# OKX funding rate is per 8-hour period
# Annualized = rate × 3 (per day) × 365
funding_rate_8h = 0.01  # 0.01% per 8h
annualized = funding_rate_8h * 3 * 365  # = 10.95% annualized

2. Funding Rate Signal Framework

Funding Rate (8h)	Annualized	Market State	Signal
> +0.05%	> +54.75%	Extreme long crowding	Contrarian short / reduce longs
+0.02% to +0.05%	+21.9% to +54.75%	Elevated long bias	Cautious, carry trade viable
+0.005% to +0.02%	+5.5% to +21.9%	Mild long bias	Neutral to mild bullish
-0.005% to +0.005%	-5.5% to +5.5%	Balanced	Neutral
-0.02% to -0.005%	-21.9% to -5.5%	Mild short bias	Neutral to mild bearish
< -0.02%	< -21.9%	Short squeeze territory	Contrarian long / reduce shorts

Funding rate regime detection:

def funding_regime(rates_7d):
    """Classify funding rate regime from 7-day history."""
    avg = sum(rates_7d) / len(rates_7d)
    consecutive_positive = all(r > 0 for r in rates_7d[-3:])
    consecutive_negative = all(r < 0 for r in rates_7d[-3:])

    if avg > 0.03 and consecutive_positive:
        return "overheated_long"       # High risk of long squeeze
    elif avg > 0.01 and consecutive_positive:
        return "bullish_carry"          # Good carry trade environment
    elif avg < -0.02 and consecutive_negative:
        return "overheated_short"       # High risk of short squeeze
    elif avg < -0.005 and consecutive_negative:
        return "bearish_carry"          # Inverse carry trade
    else:
        return "neutral"