The funding rate is the difference between the mark price of the perpetual futures market and the index price, which is the spot market equivalent of the underlying digital asset.

The funding rate serves to ensure that the funding mechanism can align the perpetual futures market price with the index price of the digital asset.

In crypto futures trading, the funding rate is used to balance the price of the futures contract with the price of the underlying digital asset index. This ensures that the trade remains fair and transparent for all parties involved.

The funding rate is usually a small percentage of the position size, which is calculated at regular intervals, such as every eight hours. A high funding rate often indicates high interest in leveraged long trades, indicating a bullish market sentiment.

This funding rate mechanism helps prevent too large a price deviation between the futures contract and the spot market of the underlying digital asset.