Funding, open interest and the crowd
Lesson 4 of 12 in the course “Analytics”. Free, with animations and a quiz.
Words first: spot and futures
Spot: you buy the coin itself, it is yours, and there is no liquidation. Futures: a contract on the coin's price, you never get the coin. On futures you can open a long, a bet that price goes up, or a short, a bet that it goes down. Leverage lets you open a position bigger than your own money, and margin is your deposit behind it. A perpetual future, or perp, has no end date.
Funding: the price of leverage
Funding is a payment between longs and shorts on perps, usually every 8 hours. It keeps the futures price close to the spot price. Funding positive: longs pay shorts, so the crowd is long. Negative: shorts pay longs. In a calm market it often sits near +0.01% per 8 hours: that is the base rate on many exchanges. High funding on almost every exchange means the skew is market-wide.
What it costs in money
Funding is charged on the position size, not on your margin. For example: a $1,000 position at +0.01% funding. The long pays shorts $1,000 × 0.01% = $0.10 per 8 hours. At +0.1% it is already $1 per period, and there are three periods a day: $3 a day. Small change? With leverage the position is big, and over a week it eats a visible chunk of margin. Plus the trading fee itself, for example 0.02%, another $0.20.
Open interest: the fuel
Open interest (OI) is the total of all open futures positions: how much money is sitting in contracts right now. Always read it next to price. Price ↑ and OI ↑: new money is joining the rise, a confirmation. Price ↓ and OI ↑: positions are piling up against the move. Price ↑ and OI ↓: the rise comes from shorts closing. Price ↓ and OI ↓: longs are closing and leverage is leaving.
The crowd vs. the big players
Example from the picture: the Binance exchange shows two long/short ratios. The crowd is counted by accounts: 72% long, one person equals one vote. Top traders are counted by money: they are 47% long. The crowd is long while the big players are not: a reason to be careful. Takers are traders who buy or sell instantly at market price. 56% buys over 24 hours means buyers are pressing.
The pressure index
To avoid juggling four numbers, they get rolled into one pressure index from 0 to 100. It combines funding, OI growth over 24 hours, crowd skew and the takers' buy share. The raw data comes from CoinGlass, a service that collects exchange stats. The higher the number, the more stretched leverage is. It does not tell you where price goes: it is about the risk of a sharp move, not its direction.
Example: reading it all together
Example: BTC +6% in a day, funding +0.06%, OI +18% over 24 hours, 72% of accounts long, takers 58% buys, index 81. The rise runs on leverage. Longs pay 6 times the normal rate: 0.06% / 0.01% = 6. On a $10,000 position that is $10,000 × 0.06% = $6 every 8 hours. It is not a short signal: the rise can go on. But if price pulls back, many longs will have to close at a loss.
Hyperliquid and CryptoQuant
Hyperliquid is a futures exchange where every position is recorded on the blockchain, that is, on-chain. So big positions there are visible to everyone: say, a $42M BTC long (an illustrative example). Funding there is paid every hour: multiply by 8 to compare with 8-hour funding. Another useful signal comes from the on-chain analytics service CryptoQuant: the taker buy/sell ratio. 1.12 means market buys exceed market sells by 12%.
Common mistakes
Trap number one: shorting just because funding is high. An overheated market can keep rising for a long time. Other mistakes: reading the pressure index as a forecast, looking at OI without price next to it, comparing hourly funding with 8-hour funding, trusting one metric. The picture is stronger when several agree. Your move: write down today's funding, OI and pressure index, and compare what changed in a week.
Check yourself
- What does this say about the market?
Correct answer: The rise runs on leverage: longs pay 8 times the norm. Positive funding means longs pay shorts: 0.08% / 0.01% = 8 times the norm. OI rising with price means new leveraged money is entering the rally. That is tension: if price turns, many longs will have to close. But on its own it is not a forecast. - How do you read this?
Correct answer: Positions are piling up against the move. Rising OI means new positions are opening, and it is happening on a drop: some add shorts, others try to catch the bottom with leveraged longs. That leverage will have to close later, so the next move can be sharp either way. - What do these numbers show?
Correct answer: The crowd and big money look in different directions. The crowd is counted by people, top traders by money. 75% vs 45%: most small accounts expect a rise, big money does not. That is a reason to be careful and check other metrics, not a guaranteed reversal. - What follows from this?
Correct answer: Leverage is very stretched, a sharp move is more likely. The index measures tension, not direction. 85 means the market is packed with leveraged positions: any push can trigger a chain of liquidations. Which way, the index does not say.