Making money quickly, losing money even faster. A single downward candlestick can wipe out weeks of gains.

I know someone who, during their first contract trading experience, tripled their account in just two days and excitedly told me they found the way to get rich quickly. What happened on the third day? A sudden sharp decline, and their account was wiped out, not even leaving the principal.

Stories like this are common in the crypto world. High leverage can create short-term thrills, but the risks behind it are very real. Having navigated the contract market for years, I want to share some insights gained from real money.

**Funding Rate is Your Trading Thermometer**

Most people tend to overlook the funding rate indicator, but it’s actually a barometer of market sentiment. In perpetual contracts, the funding rate is a periodic payment mechanism between longs and shorts, designed to bring the contract price back close to the spot price.

Positive rate? It indicates that the market is particularly bullish, and the contract price is being driven up. In this case, longs pay shorts. Conversely, a negative rate means shorts are subsidizing longs.

When should you be cautious? When the positive rate is especially high—say, exceeding 0.05% and still rising. This suggests that leveraged longs are overly crowded, making the market quite fragile. If the spot price can’t hold or negative news hits, a chain of liquidations can trigger a sharp drop, sometimes over ten percent in a flash. I usually treat abnormally high positive funding rates as a contrarian indicator; chasing the market high at this point is unlikely to end well.

Professional traders check funding rate data daily, just like doctors check a patient’s temperature. It’s an intuitive signal to judge whether the market is overheating.