Periodic payments between long and short positions in perpetual swaps to keep price aligned with spot. High positive funding = longs pay shorts.
Example
On perpetual futures, the funding rate keeps the contract price close to spot. When it is positive, longs pay shorts — a sign the market is mostly long and possibly overheated. Before local tops the funding rate often spikes. Traders therefore use it as a sentiment gauge: extremely high rates warn of an over-leveraged long side that is vulnerable to liquidation cascades.