Are significantly positive perp funding rates an indicator of "easy short money"?
Over the past 6 months, negative funding rates have been an efficient market, but positive funding rates seemingly haven't been.
I recently began suspecting that negative funding rates were predictive of positive price performance. So I decided to study it.
I took in perp funding data for >100 Binance perps which met certain liquidity and circulating market cap criteria. I also normalized them for 8 hour rates (some Binance perp funding rates are for 4 or, rarely, 2 hour increments.)
1000BONKUSDT: Average 24-hour Performance = -0.97%, n=9
1000FLOKIUSDT: Average 24-hour Performance = 3.76%, n=16
1000PEPEUSDT: Average 24-hour Performance = 0.69%, n=3
1000SATSUSDT: Average 24-hour Performance = -1.82%, n=1
1000SHIBUSDT: Average 24-hour Performance = -6.17%, n=2
1000XECUSDT: Average 24-hour Performance = -0.86%, n=25
ACEUSDT: Average 24-hour Performance = -10.96%, n=1
ANTUSDT: Average 24-hour Performance = -0.65%, n=1
APEUSDT: Average 24-hour Performance = -0.96%, n=5
API3USDT: Average 24-hour Performance = -1.36%, n=39
APTUSDT: Average 24-hour Performance = 0.13%, n=5
ARKMUSDT: Average 24-hour Performance = -7.04%, n=4
ARKUSDT: Average 24-hour Performance = -9.70%, n=18
ASTRUSDT: Average 24-hour Performance = -1.44%, n=9
ATOMUSDT: Average 24-hour Performance = -5.29%, n=1
AUCTIONUSDT: Average 24-hour Performance = -3.62%, n=22
AVAXUSDT: Average 24-hour Performance = 1.31%, n=1
AXSUSDT: Average 24-hour Performance = 0.08%, n=19
BAKEUSDT: Average 24-hour Performance = -6.65%, n=13
BCHUSDT: Average 24-hour Performance = -1.10%, n=5
BIGTIMEUSDT: Average 24-hour Performance = -3.51%, n=2
BLURUSDT: Average 24-hour Performance = -1.29%, n=1
BLZUSDT: Average 24-hour Performance = 0.94%, n=126
BNBUSDT: Average 24-hour Performance = -0.21%, n=19
BNTUSDT: Average 24-hour Performance = -2.34%, n=38
CHRUSDT: Average 24-hour Performance = -7.39%, n=2
CHZUSDT: Average 24-hour Performance = 7.22%, n=1
COMPUSDT: Average 24-hour Performance = -4.64%, n=13
CRVUSDT: Average 24-hour Performance = -1.58%, n=7
CTSIUSDT: Average 24-hour Performance = -3.87%, n=5
CYBERUSDT: Average 24-hour Performance = 2.75%, n=22
DUSKUSDT: Average 24-hour Performance = 2.31%, n=3
EGLDUSDT: Average 24-hour Performance = -6.56%, n=2
FETUSDT: Average 24-hour Performance = 7.59%, n=1
GALUSDT: Average 24-hour Performance = 1.61%, n=4
GASUSDT: Average 24-hour Performance = -4.14%, n=20
HBARUSDT: Average 24-hour Performance = -2.34%, n=1
IDUSDT: Average 24-hour Performance = -15.29%, n=1
IMXUSDT: Average 24-hour Performance = 0.18%, n=9
INJUSDT: Average 24-hour Performance = 6.67%, n=2
IOTAUSDT: Average 24-hour Performance = -0.49%, n=11
KAVAUSDT: Average 24-hour Performance = -1.20%, n=11
KLAYUSDT: Average 24-hour Performance = -2.13%, n=1
KNCUSDT: Average 24-hour Performance = -3.67%, n=9
LEVERUSDT: Average 24-hour Performance = -5.17%, n=14
LOOMUSDT: Average 24-hour Performance = -2.77%, n=26
LPTUSDT: Average 24-hour Performance = 0.67%, n=100
LUNA2USDT: Average 24-hour Performance = -9.63%, n=2
MANTAUSDT: Average 24-hour Performance = 5.39%, n=2
NEARUSDT: Average 24-hour Performance = 4.94%, n=1
NFPUSDT: Average 24-hour Performance = -7.45%, n=2
OCEANUSDT: Average 24-hour Performance = -1.52%, n=2
PENDLEUSDT: Average 24-hour Performance = 1.56%, n=10
QNTUSDT: Average 24-hour Performance = 0.22%, n=4
RUNEUSDT: Average 24-hour Performance = -1.17%, n=30
SEIUSDT: Average 24-hour Performance = -4.17%, n=21
STORJUSDT: Average 24-hour Performance = -6.43%, n=8
SUPERUSDT: Average 24-hour Performance = 3.58%, n=14
TIAUSDT: Average 24-hour Performance = -3.32%, n=5
TRBUSDT: Average 24-hour Performance = 1.68%, n=155
TRXUSDT: Average 24-hour Performance = -0.77%, n=1
UMAUSDT: Average 24-hour Performance = 5.03%, n=21
WIFUSDT: Average 24-hour Performance = 6.23%, n=1
WLDUSDT: Average 24-hour Performance = -5.88%, n=1
XAIUSDT: Average 24-hour Performance = -11.05%, n=2
XMRUSDT: Average 24-hour Performance = 0.90%, n=2
XTZUSDT: Average 24-hour Performance = -5.17%, n=3
ZENUSDT: Average 24-hour Performance = -3.02%, n=1
ZRXUSDT: Average 24-hour Performance = -3.80%, n=7
Threshold 8-hour normalized funding rate: -0.10% (APY = -109.0%)
Timeframe: Past 180 days
Overall Unweighted Average 24-hour Performance: -1.81%
Overall Weighted Average 24-hour Performance: -0.55%
(Weighted means that in the weighted avg I weighted each currency by the number of times it appeared).
This disproved my theory that negative perp funding rates are a buy signal. The forward price performance (-.55%) is in fact quite close to the arithmetic amount you’d pay over 3 8-hour funding intervals (-.3%)
The conclusion was the same for situations where the normalized perp funding rate was at least -1%, or at least -2%: the 24-hour forward performance was very close to the funding rate you’d pay for being short.
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API3USDT: Average 24-hour Performance = -6.17%, n=13
ARKUSDT: Average 24-hour Performance = -13.90%, n=2
ASTRUSDT: Average 24-hour Performance = -11.70%, n=1
AUCTIONUSDT: Average 24-hour Performance = -12.77%, n=7
BAKEUSDT: Average 24-hour Performance = -16.04%, n=4
BLZUSDT: Average 24-hour Performance = 0.02%, n=45
BNTUSDT: Average 24-hour Performance = -5.64%, n=4
CYBERUSDT: Average 24-hour Performance = -18.29%, n=6
GASUSDT: Average 24-hour Performance = -20.76%, n=10
IMXUSDT: Average 24-hour Performance = -4.64%, n=2
IOTAUSDT: Average 24-hour Performance = -5.53%, n=1
KNCUSDT: Average 24-hour Performance = -5.04%, n=1
LEVERUSDT: Average 24-hour Performance = -8.72%, n=1
LOOMUSDT: Average 24-hour Performance = -14.49%, n=17
LPTUSDT: Average 24-hour Performance = -3.99%, n=26
SUPERUSDT: Average 24-hour Performance = -6.11%, n=2
TRBUSDT: Average 24-hour Performance = 0.64%, n=70
UMAUSDT: Average 24-hour Performance = 16.68%, n=9
Threshold 8-hour normalized funding rate: -1.00% (APY = -1090%)
Timeframe: Past 180 days
Overall Unweighted Average 24-hour Performance: -7.58%
Overall Weighted Average 24-hour Performance: -3.66%
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API3USDT: Average 24-hour Performance = -9.75%, n=6
ARKUSDT: Average 24-hour Performance = -13.90%, n=2
AUCTIONUSDT: Average 24-hour Performance = -11.44%, n=5
BAKEUSDT: Average 24-hour Performance = -16.11%, n=2
BLZUSDT: Average 24-hour Performance = -4.62%, n=21
BNTUSDT: Average 24-hour Performance = -14.79%, n=1
CYBERUSDT: Average 24-hour Performance = -26.70%, n=3
GASUSDT: Average 24-hour Performance = -38.46%, n=5
IMXUSDT: Average 24-hour Performance = -4.02%, n=1
LOOMUSDT: Average 24-hour Performance = -13.63%, n=14
LPTUSDT: Average 24-hour Performance = -6.28%, n=15
TRBUSDT: Average 24-hour Performance = -1.72%, n=39
UMAUSDT: Average 24-hour Performance = 20.36%, n=8
Threshold 8-hour normalized funding rate: -2.00% (APY = -2180%)
Timeframe: Past 180 days
Overall Unweighted Average 24-hour Performance: -10.85%
Overall Weighted Average 24-hour Performance: -6.17%
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So, my initial hypothesis was wrong. A very negative perp funding rate indicates a higher likelihood that a token will go down, and these markets are highly efficient on average.
However, that doesn’t seem to apply when perp funding rates are significantly positive.
1000BONKUSDT: Average 24-hour Performance = 3.80%, n=46
1000FLOKIUSDT: Average 24-hour Performance = -8.89%, n=2
1000LUNCUSDT: Average 24-hour Performance = -2.08%, n=17
1000PEPEUSDT: Average 24-hour Performance = -4.29%, n=11
1000RATSUSDT: Average 24-hour Performance = -2.78%, n=44
1000SATSUSDT: Average 24-hour Performance = 3.23%, n=29
1000SHIBUSDT: Average 24-hour Performance = -2.92%, n=3
1000XECUSDT: Average 24-hour Performance = -3.33%, n=2
ACEUSDT: Average 24-hour Performance = -2.91%, n=21
AGIXUSDT: Average 24-hour Performance = -4.88%, n=2
APEUSDT: Average 24-hour Performance = -6.45%, n=2
API3USDT: Average 24-hour Performance = -0.64%, n=6
APTUSDT: Average 24-hour Performance = 2.26%, n=2
ARBUSDT: Average 24-hour Performance = 5.28%, n=3
ARKMUSDT: Average 24-hour Performance = -4.77%, n=2
ARKUSDT: Average 24-hour Performance = -0.28%, n=9
ASTRUSDT: Average 24-hour Performance = 3.01%, n=4
ATOMUSDT: Average 24-hour Performance = -2.79%, n=1
AUCTIONUSDT: Average 24-hour Performance = -3.07%, n=8
AVAXUSDT: Average 24-hour Performance = -1.70%, n=1
BAKEUSDT: Average 24-hour Performance = -6.39%, n=6
BIGTIMEUSDT: Average 24-hour Performance = -2.05%, n=50
BLURUSDT: Average 24-hour Performance = -5.39%, n=1
BLZUSDT: Average 24-hour Performance = 0.06%, n=16
BNTUSDT: Average 24-hour Performance = -0.41%, n=3
CFXUSDT: Average 24-hour Performance = -7.26%, n=3
CYBERUSDT: Average 24-hour Performance = 1.72%, n=11
DOTUSDT: Average 24-hour Performance = -2.54%, n=1
DUSKUSDT: Average 24-hour Performance = 6.09%, n=2
ETCUSDT: Average 24-hour Performance = -3.68%, n=1
FETUSDT: Average 24-hour Performance = -7.42%, n=2
FILUSDT: Average 24-hour Performance = -9.42%, n=2
FLOWUSDT: Average 24-hour Performance = -2.63%, n=1
GALAUSDT: Average 24-hour Performance = -3.92%, n=6
GASUSDT: Average 24-hour Performance = -1.92%, n=22
GMTUSDT: Average 24-hour Performance = 2.92%, n=3
GMXUSDT: Average 24-hour Performance = 3.53%, n=4
GRTUSDT: Average 24-hour Performance = -8.98%, n=1
ICPUSDT: Average 24-hour Performance = 3.49%, n=1
IDUSDT: Average 24-hour Performance = 0.38%, n=2
IMXUSDT: Average 24-hour Performance = -6.73%, n=3
INJUSDT: Average 24-hour Performance = -5.59%, n=6
IOTAUSDT: Average 24-hour Performance = -4.95%, n=1
JTOUSDT: Average 24-hour Performance = -4.32%, n=28
KLAYUSDT: Average 24-hour Performance = -2.42%, n=1
KNCUSDT: Average 24-hour Performance = -0.72%, n=2
LDOUSDT: Average 24-hour Performance = 10.26%, n=2
LEVERUSDT: Average 24-hour Performance = 3.87%, n=3
LINKUSDT: Average 24-hour Performance = -6.99%, n=1
LOOMUSDT: Average 24-hour Performance = -1.06%, n=27
LPTUSDT: Average 24-hour Performance = -1.35%, n=19
LUNA2USDT: Average 24-hour Performance = -6.79%, n=5
MASKUSDT: Average 24-hour Performance = -0.51%, n=2
MAVUSDT: Average 24-hour Performance = -4.76%, n=1
MEMEUSDT: Average 24-hour Performance = -1.11%, n=16
MKRUSDT: Average 24-hour Performance = -4.77%, n=1
NEARUSDT: Average 24-hour Performance = -8.99%, n=1
NEOUSDT: Average 24-hour Performance = -6.85%, n=1
NFPUSDT: Average 24-hour Performance = -6.16%, n=14
NTRNUSDT: Average 24-hour Performance = 2.36%, n=11
ONDOUSDT: Average 24-hour Performance = 4.39%, n=4
OPUSDT: Average 24-hour Performance = -4.92%, n=6
ORDIUSDT: Average 24-hour Performance = 2.74%, n=27
PENDLEUSDT: Average 24-hour Performance = -3.32%, n=3
PYTHUSDT: Average 24-hour Performance = -2.03%, n=40
RNDRUSDT: Average 24-hour Performance = -3.12%, n=3
RUNEUSDT: Average 24-hour Performance = 5.23%, n=1
SEIUSDT: Average 24-hour Performance = 2.07%, n=9
SOLUSDT: Average 24-hour Performance = -0.38%, n=3
SSVUSDT: Average 24-hour Performance = 8.33%, n=1
STORJUSDT: Average 24-hour Performance = -0.85%, n=4
STXUSDT: Average 24-hour Performance = -1.76%, n=3
SUIUSDT: Average 24-hour Performance = -0.65%, n=1
SUPERUSDT: Average 24-hour Performance = 0.23%, n=4
TIAUSDT: Average 24-hour Performance = -1.14%, n=12
TRBUSDT: Average 24-hour Performance = -0.12%, n=20
TRXUSDT: Average 24-hour Performance = -3.10%, n=2
UNIUSDT: Average 24-hour Performance = -3.75%, n=1
WIFUSDT: Average 24-hour Performance = 1.98%, n=10
WLDUSDT: Average 24-hour Performance = -7.52%, n=2
ZENUSDT: Average 24-hour Performance = 1.58%, n=1
ZRXUSDT: Average 24-hour Performance = 5.46%, n=5
Threshold 8-hour normalized funding rate: 0.10% (APY = 109.0%)
Timeframe: Past 180 days
Overall Unweighted Average 24-hour Performance: -1.66%
Overall Weighted Average 24-hour Performance: -0.99%
So, in these cases, you’d be earning 109% APY by shorting in all of these instances over the prior 6 months... and also reaping the benefit of negative price performance over the subsequent 24 hours.
Raising the threshold to "at least .2%" yields the same effective result.
1000BONKUSDT: Average 24-hour Performance = 8.09%, n=17
1000RATSUSDT: Average 24-hour Performance = -5.72%, n=22
1000SATSUSDT: Average 24-hour Performance = 7.37%, n=1
GASUSDT: Average 24-hour Performance = -0.47%, n=2
JTOUSDT: Average 24-hour Performance = 4.16%, n=1
NFPUSDT: Average 24-hour Performance = -7.80%, n=2
ONDOUSDT: Average 24-hour Performance = -6.58%, n=2
ORDIUSDT: Average 24-hour Performance = -6.63%, n=1
PYTHUSDT: Average 24-hour Performance = 6.58%, n=2
TIAUSDT: Average 24-hour Performance = 8.40%, n=1
TRBUSDT: Average 24-hour Performance = -10.04%, n=1
WIFUSDT: Average 24-hour Performance = -1.01%, n=6
Threshold 8-hour normalized funding rate: 0.20% (APY = 218.0%)
Timeframe: Past 180 days
Overall Unweighted Average 24-hour Performance: -0.30%
Overall Weighted Average 24-hour Performance: -0.13%
I am curious if a) others have replicated this, and b) what the explanatory theories are. The only theory I can come up with is that volatility also tends to be quite high when perp funding rates are generally positive, and funding arbitrageurs feel that the “easy money” isn’t worth the higher volatility.