A price chart shows where a perpetual market has been. Open interest and funding add a different layer: how much leveraged positioning is open, and which side is paying to keep it open. Read together, they describe whether a move is being built by new positions or by positions leaving, and whether one side looks crowded. They do not tell you what happens next. This guide explains what each number measures, how to read the combinations, and where the reading stops.
If you need the funding mechanics themselves, such as sign conventions, intervals and settlement ledgers, start with the funding-rates guide. This page is about using funding and open interest as context.
What open interest counts
Open interest (OI) is the total size of perpetual positions that are currently open. A worked example shows why it is not longs plus shorts: if one trader opens a long of 1 contract and the trader on the other side opens a short of 1 contract, one new contract exists and open interest rises by 1, not by 1 + 1 = 2. Every open contract has a long side and a short side, so counting both sides would double the figure.
| Event | Effect on open interest |
|---|---|
| A new buyer and a new seller both open positions | Rises |
| A trader closes a position against someone opening a new one | Unchanged |
| Both sides of a trade are closing, including forced closes | Falls |
Rising OI means new positions are being opened; falling OI means positions are being closed, voluntarily or by liquidation. Venues publish OI alongside other market fields. Hyperliquid’s information API, for example, returns perpetual asset contexts that include “mark price, current funding, open interest, etc.” Check the unit before comparing markets: some sources report OI in coins and others convert it to dollars.
The four price and OI combinations
| OI rising | OI falling | |
|---|---|---|
| Price rising | New positions are pushing price up | Shorts are covering; the rally is fuelled by exits |
| Price falling | New positions are pushing price down | Longs are closing or being liquidated; deleveraging |
The quadrant tells you whether a move is being built or unwound. It does not tell you which side was aggressive. Funding helps with that.
What funding adds
Hyperliquid’s documentation defines the funding rate as a periodic fee that is paid by one side of the contract (either long or short) to the other side. If the contract’s price is higher than the oracle price, the funding rate will be positive, and the long position will pay the short position. If the contract’s price is lower than the spot price, the funding rate will be negative, and the short position will pay the long position.
On Hyperliquid, the funding rate is paid every hour, and its fixed interest component is “0.01% every 8 hours, which is 0.00125% every hour.” When the contract trades close to the oracle, the hourly rate sits near that component. Before comparing a rate with one from another venue, convert both to the same interval.
A strongly positive rate means traders are paying a premium to hold longs: demand for long exposure is outrunning short exposure. The same documentation notes that when the funding rate is high, it can incentivize traders to take the opposite position and help to bring the contract’s price closer to the spot price of the underlying asset. A negative rate means the short side is paying. Either one can persist for days; the rate measures the cost of staying in, not the timing of a reversal.
Translate a rate into a cost before you interpret it. At an invented +0.0040% per hour, a $10,000 long pays $10,000 × 0.00004 × 24 = $9.60 a day. Annualized without compounding, the rate is 0.004 × 24 × 365 = 35.04 percent a year. Funding on Hyperliquid is capped at 4%/hour, far above typical readings.
Worked readings with invented numbers
A crowded long. Over 24 hours, SOL’s price is up 5%, OI is up 12% and funding is +0.0040% per hour. New positions are opening and longs are paying a high premium. The rally has participation, and the long side is also crowded. If price stalls, longs paying that rate have a reason to leave, and a fast drop could trip stops and liquidations.
Short covering. Price is up 5% while OI is down 8% and funding is slightly negative. Positions are closing while price rises, which fits shorts buying back. Once covering is done, that source of buying ends; a lasting trend usually needs new positioning as well.
A washout. Price is down 6%, OI is down 15% and funding swings from positive to negative. A large share of positions closed, many of them likely by liquidation. The crowded longs are gone, so there is less fuel left for further forced selling. That is a condition traders study, not a signal that a bottom is in.
Squeezes and liquidation cascades
When many leveraged positions sit on one side with liquidation prices close together, a move against them can feed itself:
- Price reaches the first liquidation levels.
- Those positions are closed with orders in the opposite direction. Hyperliquid describes liquidations as first being “attempted to be entirely closed by sending market orders to the book.”
- Those orders push price further, toward the next cluster.
This is why traders look at where liquidation levels cluster. Cluster data usually covers only some accounts. SuperQuant’s technical reads methodology is explicit about its own scope: “Their reported liquidation prices cover the tracked set only and are not a market-wide liquidation map.” Treat a cluster as an area where price could move quickly if reached, not as a map of the whole market.
Reading funding as a contrarian lens
Because high positive funding means the long side is crowded and paying, some tools read it against the crowd. SuperQuant’s technical reads methodology describes one such lens in Radar and the Asset Hub: “The “Funding (crowding)” lens leans against the side that is paying once the hourly funding rate is at least 0.002% in either direction, and it carries half the weight of the other lenses.” When tracked large traders lean long while the crowd is also paying heavily to be long, the lenses disagree and the verdict is mixed. Disagreement is a prompt to check the evidence, not to act; the signal workflow guide shows what to check next.
Limits of positioning data
- OI and funding describe the venue that reports them. Positioning on one exchange may not reflect the whole market.
- A single snapshot misses the path. Compare changes over a stated window, such as 24 hours, and note the timestamp.
- Crowded conditions have preceded sharp moves, and they have also persisted for weeks. The data shows conditions, not outcomes.
- A crowded-positioning reading does not reduce the risk of the position itself. Hyperliquid’s liquidation documentation states that “A liquidation event occurs when a trader’s positions move against them to the point where the account equity falls below the maintenance margin.”
Positioning data is context for a decision you still have to make. Educational material only; all numbers above are invented for illustration.