Guides › Bitcoin open interest and funding rate: what they say about the market
Bitcoin open interest and funding rate: what they say about the market
Open interest (OI) is the total number of open futures contracts. It does not show direction on its own, but combined with price it says a lot about what is happening.
The four combinations of OI and price
| Price | Open interest | Usual reading |
|---|---|---|
| Rises | Rises | New long positions entering |
| Falls | Rises | New short positions entering |
| Rises | Falls | Shorts closing (short covering) |
| Falls | Falls | Longs closing or being liquidated |
Funding rate
Perpetual contracts use a periodic payment between longs and shorts, the funding rate, to keep their price close to spot. When it is positive, longs pay shorts: there is more long demand. A very high funding rate means the market is crowded with longs, which raises the risk of liquidation cascades if price falls. Negative funding means the opposite.
Long/short ratio
The ratio of long versus short retail accounts is usually read as a contrarian signal: when almost everyone is on one side, the risk of a move against them grows. RadarFlow compares the current ratio with its recent average to spot extremes.