What Funding Arb is
Funding Arb is market-neutral. It holds a spot long and a perpetual-futures short of equal notional, so price moves on the two legs roughly cancel out. What you keep is the funding rate — the periodic payment perp shorts collect while funding is positive. Little directional exposure; income from the funding stream.
Key parameters
- •Pair & notional — matched spot and perp sizes, sized to stay delta-neutral.
- •The edge is set by the market: it only exists while funding is positive enough to beat both legs' fees.
When to use it
- •Persistently positive funding you want to harvest with minimal price exposure.
When NOT to use it
- •Negative or thin funding — the carry won't cover fees and the cost of holding both legs.
The pitfall
"Market-neutral" is not "risk-free." The legs can diverge (basis risk), funding can flip negative mid-trade, and the short leg is leveraged — a size mismatch or a liquidation on one side breaks the hedge and leaves you directionally exposed. Keep the legs matched and watch funding and margin on both.