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Funding rates indicate the cost of holding perpetual futures. Positive rates suggest longs are paying shorts, often in overheated markets; negative rates suggest shorts are paying longs, common in bearish phases. Extreme funding rate spikes often precede sharp reversals as traders unwind positions. Monitoring funding rates across major exchanges, combined with open interest data, can help identify when markets are overleveraged. Funding normalization after extreme readings can mark the start of more sustainable trends and provide safer entry opportunities.
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