# Why funding rates go negative (and what it tells you) > Why perpetual futures funding rates turn negative, what the mechanics reveal about market positioning, and how to read a negative rate before trading. - Canonical page: https://lynx.finance/blog/why-funding-rates-go-negative/ - Published: 2026-07-31 - Updated: 2026-08-05 - Author: Lynx - Category: Learn - Reading time: 4 min - Keywords: negative funding rate, why do funding rates go negative crypto, negative funding rate meaning Traders often read a negative funding rate as a bearish crowd paying to stay short, and sometimes it is exactly that. The safe starting point is narrower: a negative rate usually means short positions pay long positions under that venue's sign convention, and it says nothing about which formula produced it. Some venues derive funding from the perpetual's premium or discount to an index. Lynx derives it from the imbalance between long and short open interest. The sign is useful only after the venue's method is known. ## What a negative funding rate means, precisely Perpetual futures have no scheduled expiry. Venues use [funding rates](https://lynx.finance/glossary/funding-rate/) to create a recurring cost or payment that discourages one-sided positioning or persistent price divergence. On a premium-based venue, a perpetual below its reference [index price](https://lynx.finance/glossary/index-price/) commonly produces negative funding, so shorts pay longs. [Hyperliquid's funding documentation](https://hyperliquid.gitbook.io/hyperliquid-docs/trading/funding) is one example. Its formula combines a premium component with a fixed interest component and settles funding hourly. Other venues use open-interest skew, inventory, utilization, or a hybrid formula. Settlement interval, caps, sign display, payment base, and recipients can all differ. ## What pushes a perpetual below its index On a premium-based market, selling pressure can push the perpetual below its index. That pressure may come from directional shorts, hedgers, basis traders, liquidations, or thin liquidity. A spot holder may short a perpetual as a hedge without expressing a bearish view on the combined position. A basis trader may hold spot and short the perpetual to capture a spread or funding payment. After a decline, long liquidations and new short positions can also leave a market one-sided. In a thin order book, modest flow may move the premium more than it would in a deep market. On a skew-based venue, the perpetual does not need to trade below an index for funding to turn negative. A larger short side can be enough under the venue's formula. ## Is negative funding bullish? Negative funding is a financing condition, not a price forecast. It can coexist with a continuing decline, a flat market, or a rebound. Crowded shorts can contribute to a squeeze if price rises and positions close. But a short can remain profitable while paying funding if the directional gain exceeds the financing cost. Read funding beside [open interest](https://lynx.finance/glossary/open-interest/), price, and volume. Negative funding with rising open interest is consistent with new short exposure, but it does not prove who opened it or why. Negative funding with falling open interest may be consistent with deleveraging. Again, it is evidence to interpret, not a complete signal. ## What it does to an open position Funding changes the equity of an open position according to the venue's settlement rules. A position paying funding loses equity; a position receiving it gains equity before other fees and PnL. For a short on a conventional negative rate, funding is a recurring cost. For a long, it is a receipt. The payment can affect the liquidation buffer when it is added to or deducted from position equity. Funding is separate from entry price. It should be included in expected holding cost, especially for positions kept through several settlement periods. ## Reading the number correctly Normalize the interval first. `-0.01%` per hour and `-0.01%` per eight hours are not comparable without converting them to the same period. Treat annualized funding as an extrapolation, not a promised yearly return. The underlying rate can change before the next settlement. Check the formula, payment base, caps, and settlement timing. Confirm whether a [mark price](https://lynx.finance/glossary/mark-price/), index premium, or open-interest skew drives the calculation. Different venues can show different funding for the same market because their prices, positions, formulas, and intervals differ. ## How negative funding works on Lynx Lynx calculates funding from the imbalance between long and short open interest. Its [fee documentation](https://lynx-finance.gitbook.io/lynx-finance/for-users/fees) calls that imbalance the skew. When long open interest is larger, longs pay and shorts receive. When short open interest is larger, shorts pay and longs receive. The larger side is charged to encourage more balanced exposure. This means negative funding on Lynx should not be described simply as “the perpetual is below the index.” It indicates the payment direction produced by Lynx's skew-based model. The Lynx [glossary](https://lynx-finance.gitbook.io/lynx-finance/community/glossary) describes part of funding entering a reserve, with the remainder going to traders on the less exposed side. Check the current interface and documentation for the active model. The [funding glossary entry](https://lynx.finance/glossary/funding-rate/) gives the compact definition. The [on-chain perpetual futures guide](https://lynx.finance/blog/onchain-perpetual-futures-explained/) places funding inside the wider [perpetual](https://lynx.finance/glossary/perpetual-futures/) system. ## Sources - [Lynx: Fees](https://lynx-finance.gitbook.io/lynx-finance/for-users/fees) — Lynx funding skew, payment direction, and displayed rates. - [Lynx: Glossary](https://lynx-finance.gitbook.io/lynx-finance/community/glossary) — Lynx funding definition and reserve treatment. - [Hyperliquid: Funding](https://hyperliquid.gitbook.io/hyperliquid-docs/trading/funding) — one documented premium-based funding model used for comparison. This guide is educational and does not provide financial advice. Funding formulas and rates can change; verify the current venue rules before trading.