Crypto Funding Rate Arbitrage: Cross-Venue Hedges and Cash-and-Carry
Summary
The document explains perpetual swap funding: when a swap trades above spot, longs pay shorts, and when it trades below spot, shorts pay longs. It describes two approaches to funding rate arbitrage: taking opposing positions on exchanges with different funding rates, and pairing a perpetual swap with a monthly futures contract. It also introduces cash-and-carry, which pairs a spot purchase with a futures sale when futures trade above spot.
The article frames these positions as ways to seek returns from funding or price differences while hedging directional exposure. It flags fees, slippage, liquidity, capital needs, and access to analytical tools as practical constraints, and warns that low-liquidity markets may expose traders to forced liquidations. Its claims of risk-free or consistent profits are not supported by quantified evidence; funding differentials, basis, execution, and costs can change. The strategies therefore require monitoring and careful accounting rather than assuming the hedge guarantees a profit.
Key ideas
- Perpetual swap funding payments help keep swap prices aligned with spot prices.
- Cross-exchange arbitrage pairs a long on the lower-funding venue with a short on the higher-funding venue.
- Perpetual and monthly futures positions can be paired to target differences between contract markets.
- Cash-and-carry combines a spot purchase with a futures sale when futures trade above spot.
- Fees, slippage, liquidity, capital requirements, and changing rate differentials can erode returns.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.