A negative funding rate means that shorts are paying longs to hold positions, which generally indicates a bullish bias. Many traders are net long and willing to pay a premium to maintain their long exposure. Here is how to interpret and trade it:
Interpretation
When the rate is below zero for several consecutive funding intervals, it suggests strong long demand and crowded longs.
It can also indicate that the price may be due for a pullback once the crowding unwinds.
Strategy Example
If funding is −0.02% every 8 hours and you open a 1x long position with 0.1 BTC notional, you earn 0.00002 BTC (~1.8 USD at $90 000) every funding period.
To manage risk you can hedge spot exposure by shorting an equivalent amount of spot BTC or a stablecoin basket. This isolates the trade to pure funding carry.
Risk Controls
Set a stop-loss on your perp position if price moves against you by more than the funding you collect.
Consider reducing leverage when funding is extremely negative (for example lower to 0.2×) to avoid liquidations.
This approach allows you to profit from the funding payments while hedging directional risk.