I just noticed an interesting situation in the futures market. Funding rates have gone negative across a number of assets, and this is, by the way, a classic case of negative funding. In simple terms, most traders are currently short, and the exchange is penalizing them for it.

When negative funding is as sharp as it is now, an intriguing game begins. Take ICNT — the rate is simply killer, minus 0.57% over a few hours. ZKP, DASH, AXS — all in a similar situation, sellers are pushing from all sides. Short sellers are paying longs for the right to hold their positions.

Why is this important for a trader? Here’s where the magic begins. When negative funding reaches such levels, conditions are created for a short squeeze. Imagine: there are too many shorts, funding is biting, and suddenly the price jumps a little. Panic ensues, short sellers start closing their positions en masse, the price skyrockets, stop-losses are triggered one after another. A domino effect in action.

Practice: if you are long on these coins, the exchange is paying you just for holding. But if you’re thinking about shorting, remember that funding will work against you and quickly eat into your profit.