Coin-Margined Short Funding Arbitrage and Its Risks
Summary
This article explains a one-times-leveraged short position in a coin-margined perpetual contract as a way to seek funding payments while keeping the position’s dollar value relatively stable. It describes how fixed-value contracts change the amount of coin represented by a short as prices move, and how funding transfers between longs and shorts: positive rates pay shorts, while negative rates charge them. The proposed implementation uses staged initial orders and adds to the position using accumulated profits.
The article presents cumulative funding data for a Bitcoin contract from 2020 onward, reporting roughly 50% over five years, and describes backtest results as stable across several market cycles. It also notes that this outcome depends on the contract and market regime: some contracts have persistently negative cumulative funding, and extended negative rates can erode returns. The discussion acknowledges that the design lacks dynamic responses to changing conditions and may offer limited upside; its claims of low risk should be weighed against funding variability and the assumptions behind its backtest.
Key ideas
- A coin-margined short at one-times leverage is presented as maintaining relatively stable dollar exposure as the coin price changes.
- Positive perpetual funding pays the short side, while negative funding creates a cost.
- The described implementation stages entry and rolls accumulated profits into additional positions.
- Historical Bitcoin funding is offered as evidence, but results may differ by asset and market regime.
- The strategy lacks dynamic market switching and may have limited upside despite its stated stability.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.