Funding Rate and Open Interest: does it work?

On crypto perpetual futures, the funding rate shows which side is paying to hold its position and open interest shows how much leverage is outstanding. Both are widely used as contrarian or confirmation signals.

The rule we tested. Six rules, each using funding or open interest: trading a funding sign flip, buying a rebound after a funding reset and leverage washout, a return-orthogonalised funding residual, a funding-and-open-interest squeeze detector, open interest confirming price momentum, and 24-hour momentum filtered by rising open interest.

These versions did not pass these tests. crypto pairs −98.2 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −59.8 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −56.4 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −83.2 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −81.6 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −129.6 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000). None cleared Tickfloor's Benjamini-Hochberg q<0.10 bar once weighed against every other rule tested alongside it. This describes the tested implementations, the costs and the benchmark stated here, not every version of the rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

This is one line in a wider check: Tickfloor's research desk has run 517 strategies, most of them against an equal-weight benchmark of the same assets rebalanced daily that pays no costs (the strategies pay theirs), and after correcting for how many were tested (Benjamini-Hochberg, 598 tests), 0 passed. That does not prove no strategy works, and it says nothing about untested versions of a rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.

Do funding rate and open interest signals work?

These versions did not pass these tests. crypto pairs −98.2 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −59.8 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −56.4 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −83.2 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −81.6 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000); crypto pairs −129.6 pts/yr vs the benchmark (unadjusted p=1.000, BH-adjusted q=1.000). None cleared Tickfloor's Benjamini-Hochberg q<0.10 bar once weighed against every other rule tested alongside it. This describes the tested implementations, the costs and the benchmark stated here, not every version of the rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

What exact rule did Tickfloor test?

Six rules, each using funding or open interest: trading a funding sign flip, buying a rebound after a funding reset and leverage washout, a return-orthogonalised funding residual, a funding-and-open-interest squeeze detector, open interest confirming price momentum, and 24-hour momentum filtered by rising open interest.

Is this financial advice?

No. This measures a publicly claimed strategy rule, not a recommendation. General information only, not personal advice.

See the full numbers on the Momentum, Mean reversion, Funding carry, Open-interest and price divergence, Managed futures trend family pages, or the full method and every result.

Other rules we've tested

Terms explained

All the rules we tested