Many beginners get confused about the mechanics of funding on futures. Let's clarify what it really is.

Funding is essentially a system that balances the price of futures with the spot price. When these two markets diverge, the so-called funding rate comes into play, which forces market participants to pay each other.

The rate can be either positive or negative. It all depends on whether there are more long or short traders. If longs dominate the market, the rate is positive, and shorts pay longs a fee. Conversely, when shorts are more prevalent, the rate turns negative, and longs pay those who short.

These calculations are usually done every 8 hours, meaning three times a day. This means your position can either earn or cost you money just for holding it, even if the price doesn't move.

It's important to understand: funding is a very significant indicator to consider when choosing an entry point for a trade. It shows how skewed the market position is in one direction or another. But here's the catch — if most traders are positioned in one direction, it doesn't guarantee that the price will move exactly there. The crowd generally loses money rather than makes it. So, don't blindly follow the majority, even if the funding rate clearly favors one side of the market.