Funding rate arbitrage
Also called: funding arbitrage · cash-and-carry · delta-neutral funding
Definition
Funding rate arbitrage is a market-neutral strategy that collects funding payments by holding opposite positions, usually spot long and perpetual short, so price moves largely cancel out.
This entry is shown in English.
How Funding rate arbitrage works
When funding is positive, longs pay shorts. If you buy a coin on spot and open a short perpetual of the same size, price moves offset each other and you receive funding each interval. When funding is negative, the reverse setup, short spot via margin and long perp, can collect it, though that is harder to do.
A variation uses two exchanges: short the perp where funding is high and long the perp where it is low or negative. The goal is the same: be neutral on price and earn the difference in funding.
The strategy has real costs and risks. Trading fees on four legs (open and close, spot and perp) can eat days of funding. Funding rates change every interval and can flip negative. The short perp needs margin and can be liquidated in a sharp rally if it is under-collateralised, even though the spot side gained. Exchange risk and withdrawal limits also apply. Settlement intervals differ by exchange and pair.
Example
Suppose you buy 10,000 USDT of BTC on spot and short 10,000 USDT of a BTC perpetual with 2,500 USDT of margin. Funding is +0.01% every 8 hours, paying you 1 USDT per interval, or 3 USDT a day. Opening and closing all legs at 0.1% each costs about 40 USDT, so you need around two weeks at that rate just to cover fees. Over 90 days you would collect about 270 USDT, or roughly 230 USDT net, on 12,500 USDT of capital.
Common mistakes
- Ignoring trading fees, which can wipe out weeks of funding income.
- Using too little margin on the short so a rally liquidates it while the spot side is stuck on another account.
- Assuming a high funding rate will stay high.
Learn and practise
FAQ
Is funding rate arbitrage risk-free?
No. Funding can turn negative, fees add up, the short can be liquidated if under-margined, and exchange risk remains.
How much can funding rate arbitrage earn?
It depends entirely on current funding rates, fees and capital efficiency. Returns vary widely over time and are often modest after costs.