Collated Funding Rates is a Crypto Specific Indicator that pulls Exchange Funding Rate Data from several exchanges for both Bitcoin and Ethereum. By combining both the Funding Data for Bitcoin and Ethereum across several exchanges, a Trader can see the Collated Funding Rates for the Majority of the Crypto market.
Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. Therefore, depending on open positions, traders will either pay or receive funding. Crypto funding rates prevent lasting divergence in the price of both markets
These Funding Rates also incentivize Liquidity Providers to take certain positions whether Long or Short based on the Funding Rate.
A Liquidity Provider, also known as a Market Maker, is someone who provides their crypto assets to a platform to help with the decentralization of trading. In return, they are rewarded with fees generated by trades on that platform, which can be thought of as a form of passive income.
When the Funding Rate is positive, the price of the perpetual contract is usually higher than the market price. Thus, traders who are long pay for short positions. Conversely, a negative Funding Rate means that short positions pay for longs.
As the funding rate decreases from positive to negative Traders and Liquidity Providers are incentivized to take long positions. This can be seen on the indicator as it changes from green to red.
Funding Rates are used by Exchanges to manipulate the price. Because of this fact, Collated Funding Rates can be a Leading Edge Indicator as the Funding Rates tend to change when a specific up or down move in Price is coming to an end.