Funding Arbitrage
Glossary · Derivatives
Funding arbitrage collects the funding rate without directional price risk: buy the asset on spot, short an equal amount on the perpetual, and pocket the payments longs make to shorts while the two legs cancel each other out. Returns float with funding — fat in euphoric markets, thin or negative when the crowd flips.
"Long spot, short the perp, and collect rent from the levered longs — the boring trade that works until funding flips."
The build: buy 1 BTC spot, short 1 BTC on the perp. Price movement cancels — the short's loss is the spot's gain — and you collect funding every interval the rate stays positive. At 0.05% per 8 hours that's about 0.15% a day on notional, roughly 50% annualized if it held, which it never does for long. Desks run this across exchanges and coins, rotating to wherever funding is fattest, and net maybe 8–20% annualized in normal markets after fees.
The "riskless" label hides four real risks: funding flips negative and now you're paying; fees and slippage on two legs eat thin rates alive; your collateral sits on an exchange, and counterparty risk is the whole ballgame — ask anyone who ran this on FTX; and if the short leg is levered, a violent spike can liquidate it before you rebalance. It's genuine yield when funding is stretched, but it's a spread trade with operational teeth — size it like a trade, not like a fixed deposit.
Related jargon
Questions
- What is Funding Arbitrage in crypto trading?
- Funding arbitrage collects the funding rate without directional price risk: buy the asset on spot, short an equal amount on the perpetual, and pocket the payments longs make to shorts while the two legs cancel each other out. Returns float with funding — fat in euphoric markets, thin or negative when the crowd flips.
- How would a trader say it?
- Long spot, short the perp, and collect rent from the levered longs — the boring trade that works until funding flips.
Part of the Crypto Jargon glossary — every term, decoded the way a trader would say it.
Crypto Jargon
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