I've noticed that many beginners get confused about funding, so I decided to explain it simply.

Funding is essentially a fee that traders pay each other on futures. No exchange takes a cut here; the money is transferred directly between participants.

Here's how it works: if the majority is long, long traders pay short traders. If the opposite is true — shorts pay longs. Funding just monitors where the majority of money is now and redistributes accordingly.

Why is this necessary? To prevent the futures price from drifting too far from the spot price. Imagine if the futures surged 10% higher while the spot stayed put — the market would become unbalanced. Funding helps prevent that.

What beginners need to know: funding is deducted every few hours automatically. Even if the price doesn’t move, you can gain or lose money just because of funding. Also — high funding often signals that the crowd has already heavily entered one side. This can be a useful signal for making decisions.

In general, funding is a fee for when the majority is skewed to one side. It’s important to keep this in mind when trading.