I recently started using the Coinglass app and noticed the funding rate bars along with the open interest chart below them.
As far as I know, green bars indicate a bullish sentiment while yellow bars represent a bearish one.
I was trying to trade Zcash, which skyrocketed almost 30% in just a few hours on Sunday. Yet, throughout the afternoon, most of the bars were yellow, which suggested a sentiment for short selling. That didn't really match what was happening with the price.
The only explanation I can think of is that the price shot up so quickly that a lot of traders were shorting it and getting liquidated in the process?
If that's true, then what's the point of these funding rate bars if they don't reflect the actual price movements?
I usually just spot trade, but I feel like I need to get a grasp on perpetuals to make smarter choices. Anyone here use Coinglass and know what’s really going on?
I am also new to Coinglass and have barely used it more often because as you know it is used to visualize data related to derivatives and there are other tools with similar functions in the trading space like coinAnk, TradingView, santiment, fear and greed index.
I can deduce that you understand to some extent why Coinglass exist and as long as bars of varying colors are present, they are just visual cues that will help or assist you the trader to quickly interpret the market sentiment inherent.
If the colors are darker than it should be, it would mean that the funding rate is way extreme than normal, thus showing a stronger imbalance.
The green bar indicates a positive funding rate which shows a bullish run, while the yellow or red in some cases indicate a negative funding rate of which shows the bearish run.
I don't know how to expansiate further, but am sure that you would find your footing soon with better responses and a careful study of the Coinglass modus operandi.
There's an option where you can customize the colors you want based on the value of the rate.
But usually the default is like this, green colors dark/light is 0< rate <= 0.005, while red colors dark/light is 0.01 <rate <=0.05.
Basic explanation is if negative, traders mostly short, if positive funding rates, traders are mostly long.
FR only shows the net sentiment of perpetual futures positions (long/short) and how their financing is balanced. It is not an indicator of short-term price direction. Spot prices may advance while FR is still slow to adjust, as FR data is derived from perpetual, not spot.
I assume this mismatch could be caused by a slow response (spot prices react quickly, funding rates change only at certain intervals) or aggressive trader behavior when prices suddenly experience extreme volatility spikes (ex. many traders impulsively open short hoping for a retracement, which would cause the FR to turn negative/yellow).
Funding rate is just a way to keep perpetual market price stay close with spot market.
If price is higher funding rate is positive and if price is lower funding rate is negative. As simple as that, it doesn't mean anything though, just that.
That's why there are people who hedge to find profit from funding rate in perpetual market.