Perpetual Futures Funding Rate Arbitrage in Both Directions
Summary
This note explains two cash-and-carry approaches to perpetual futures funding. When funding is positive, it buys spot and shorts the perpetual contract to collect payments from longs. When funding is negative, it describes borrowing and selling spot while buying the perpetual contract to receive payments from shorts. Both approaches aim to combine funding income with gains or losses from changes in the spot-perpetual price spread.
Numerical examples illustrate how funding and spread changes contribute to a trade’s result, and how borrowing interest reduces returns in the reverse trade. The author suggests closing when a favorable spread move covers fees, or when expected funding payments or borrowing costs become unattractive. The examples are simplified: they assume stable prices for calculating funding, omit some real-world costs and risks, and do not establish that the cited annualized rates or opportunities will persist. Funding can change, spreads can move adversely, and leverage or borrowing creates additional exposure.
Key ideas
- Positive funding can be collected by buying spot and shorting a perpetual contract.
- Negative funding can be collected by borrowing and selling spot while buying a perpetual contract.
- Total returns combine funding payments with changes in the spot-perpetual spread.
- Reverse arbitrage is attractive only when funding income can exceed borrowing interest and trading costs.
- A trader may close when funding turns costly or borrowing costs rise.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.