Variable Rate Crypto Cash and Carry Using Perpetual Funding

Summary

This lesson explains a variable rate cash and carry trade using spot BTC and a short BTC perpetual. The spot holding offsets the perpetual’s directional exposure, while the trade seeks income from funding payments when the perpetual trades above its index and longs pay shorts. Unlike a dated futures basis trade, whose premium can be observed at entry, the perpetual strategy’s return varies as funding changes.

The worked example describes opening matched spot and perpetual positions, monitoring funding receipts through account records, and periodically increasing the short to hedge BTC received as funding. That adjustment also compounds the notional used to calculate later funding. The lesson discusses maker order execution and closing by covering the perpetual before selling the spot. It warns that funding can turn unfavorable and recommends monitoring it. The example illustrates mechanics on one exchange, but does not establish stable returns or quantify fees, slippage, margin risk, or the effect of prolonged negative funding.

Key ideas

• A variable rate cash and carry pairs a spot asset holding with a short perpetual position to reduce directional exposure.
• The strategy earns funding when longs pay shorts, but the payment rate changes over time.
• Funding receipts in BTC add to spot holdings and can be hedged by increasing the perpetual short.
• The author distinguishes variable funding income from the futures premium captured by a fixed rate cash and carry.
• A sustained change in funding direction may make the position unattractive and lead the trader to close it.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.