What Is the Binance Funding Rate Arbitrage Bot and Frequently Asked Questions
2024-04-29 21:19
Introduction
Frequently Asked Questions
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1. What is the Binance Funding Rate Arbitrage Bot?
The Binance Funding Rate Arbitrage Bot is an innovative tool designed for traders to engage in arbitrage strategies between perpetual futures contracts and their spot equivalents.
It leverages the funding rate mechanism by hedging their futures positions with spot positions to collect funding fees.
2. What are funding fees in perpetual futures trading?
Funding fees are periodic payments between long and short position holders in perpetual futures markets. They are designed to keep futures prices aligned with spot prices of the underlying asset.
Funding Fees = Position Size x Funding Rate
The funding rate determines the funding fee, and fluctuates over time for each symbol independently. You can have an overview of the funding rates for all symbols on Binance Futures here.
Arbitrage involves taking a long position in one market (e.g., Spot) and a short position in another (e.g., Futures) to collect the funding fee.The funding rate arbitrage strategy is delta neutral, meaning it aims to hedge out price movement risks by holding opposite positions in the futures and spot markets.
This strategy ensures that regardless of price direction, the profit from a long position offsets the loss from a short position (or vice versa), while collecting the funding fee.The primary goal is to profit from funding rate payments without being exposed to significant price volatility risks.
Positive Carry
When the funding rate is positive, a trader can generate stable funding fee income by purchasing the asset on the Spot market and short selling an equivalent position in perpetual Futures contracts. This approach is often referred to as positive arbitrage.
Reverse Carry
When the funding rate is negative, traders can still earn stable funding fee income by shorting on the Spot market (typically by selling the asset at the current price) and going long on an equivalent leveraged position in perpetual futures contracts. This strategy essentially bets on a future price increase while benefitting from the funding fee rates.
The Binance Funding Rate Arbitrage Bot streamlines the execution of these strategies by automating the process for the user. After selecting a trading pair, such as BTCUSDT, the bot analyzes the current funding rate direction.
If the 3-Day Cumulative Funding Rate is Positive (Long Pays Short):
When the funding rate is positive, indicating long positions pay short positions, the bot may short the perpetual futures contract (benefiting from the funding rate) and buy an equivalent amount of the asset on the Spot market.This strategy is referred to as [Positive Carry] on the front end.
If the 3-Day Cumulative Funding Rate is Negative (Short Pays Long):
When the funding rate is negative, indicating short positions pay long positions, the bot will take a long position in the Futures market and sell an equivalent amount in the Spot market. To maintain the original asset balance in the Spot market, the bot buys back the asset on the Spot market after collecting the funding fees. This strategy is referred to as [Reverse Carry] on the front end.
This automated approach ensures that traders can consistently take advantage of funding rate fluctuations, potentially securing profits from these periodic payments.
4. How to use the Binance Funding Rate Arbitrage Bot?
Step 1. Navigate to Arbitrage Bots
From the Binance homepage, select [Trade] - [Trading Bots], then click [Arbitrage Bots].
Alternatively, go directly to the [Arbitrage Bots] section on the Trading Bots interface.
Step 2. Pick a symbol for your arbitrage strategy
Start by selecting a symbol for your arbitrage strategy.
Understand the rates:
3D Funding%: The sum of the recent funding rate settled over the past 3 days.
APR: The annual rate generated by extrapolating the funding rate to a year. APR =|3 Day Cum. Rate%| / 3 * 365
Strategy options:
[Positive Carry]: Use this strategy when the 3-Day Cumulative Funding Rate is positive. This involves shorting futures to accumulate funding fees and buying the equivalent amount on the Spot market to hedge against price changes.
[Reverse Carry]: Use this strategy when the 3-Day Cumulative Funding Rate is negative. This involves going long on futures to collect funding fees and shorting an equivalent amount on the Spot market.
Step 3. Enter investment amount
Once you’ve chosen the symbol, go to the order interface to input your parameters.
You can visualize your amount available on Spot and input your investment amount. Ensure sufficient funds by transferring or depositing into your Spot Wallet.
Please note:
The investment asset for USDⓈ Futures and COIN-M Futures positive carry arbitrage is USDT.
The investment asset for USDC Futures positive carry arbitrage is USDC.
The investment asset for reverse carry arbitrage is base asset (e.g., BTC, ETH, BNB)
Buffer mechanism:
10% of the initial investment is reserved as a buffer to account for margin checks and market movements.
For example:
If you invest 1,000 USDT into a long USDⓈ-M strategy, 900 USDT will be used to buy the base asset, with a corresponding 900 USDT notional value allocated to the short USDⓈ-M position.
The buffer helps prevent failing the margin check when the market moves sharply during strategy creation.
Note: Before initiating your Arbitrage Bot, please review the [Recommended min holding period]. This is the estimated breakeven period based on the past 30-Day Average Funding Rate. Tap on [>] to view the Breakeven Estimator calculation details based on 3/7/30 day Funding Rate Assumption.
Step 4. Create an arbitrage portfolio
Set your parameters and initiate the strategy. It may take some time for the bot to align the sizes of both legs of the strategy.
5. Monitoring and manage your portfolios
Monitoring your strategies:
Track your strategy from the [Running] tab for details such as:
Position size: Notional values of the Spot and Futures legs.
Total funding: Accumulated total of all funding fees collected during the strategy’s runtime.
Market value: Total balance of all assets allocated to the strategy (calculated using the last price) + unrealized PnL from futures positions.
Funding fee alert: Indicates if the 3-Day Cumulative Funding Rate or the Next Funding Rate has an opposite buy/sell direction from your running strategy. Consider ending the strategy manually when triggered.
Managing the Strategy
To end your strategy, click [End] on the user interface to close all positions and stop the trading strategy. Then click [Confirm].
If delays occur in closing the bot due to spread control, you can skip the spread control check by clicking [Speed Up] to close the bot immediately at market price.
Filter options: Utilize filters to display strategies based on Positive Carry or Reverse Carry.
History review: Access the [History] tab to review past strategies and their outcomes.
Monitoring your Trading Bots assets
1. Access your Arbitrage bots assets and strategies via the [Wallet] section:
If not already activated, you must first enable your Trading Bots wallet. Click [OK] to proceed.
3. To view your running arbitrage strategies, navigate to [Trading Bots] > [Arbitrage Bot] > [Running].
4. To view assets allocated to running arbitrage strategies, select [Arbitrage Bot] - [Assets].
5. To view further details of arbitrage records, click [View Bot].
Frequently Asked Questions on Futures Funding Rate Arbitrage Bot
1. How many funding rate strategies can I run simultaneously?
You can run up to 10 independent funding rate arbitrage strategies, each supporting a different symbol. However, you cannot operate more than one strategy per symbol, even across different accounts.
For example, if you open a BTCUSDT long in one account, you cannot open another BTCUSDT strategy in a different account.
2. Is borrowing on Margin available for these strategies?
Currently, borrowing on Margin is not supported for these arbitrage strategies.
3. What is the impact of leverage on my futures positions?
Leverage affects the initial margin required but does not influence the margin ratio. Therefore, increasing leverage does not inherently increase liquidation risk.
Your futures position size is equal to your spot order executed size in order to keep a delta neutral strategy.
The leverage level will impact the initial margin required to keep the position open.
4. What is spread control?
Spread control ensures that Futures price and Spot price are aligned when creating a strategy to prevent losses due to slipage.
Spread = Futures Last Price - Spot Last Price; for Long is -0.1%, for Short is 0.1%
Note: The system’s default spread control is set to an absolute value of 0.1%.
5. Closing and opening time delays due to price spread
The Binance Funding Rate Arbitrage Bot ensures the spread between futures and spot prices remains within the acceptable range (typically 0.1%) before opening or closing a position. If the price difference exceeds this threshold, the bot may delay executing the trade until the spread returns within this range to prevent potential losses due to slippage.
Therefore, in cases where the spread remains outside the acceptable range for an extended period, users may experience delays in closing their strategies.
6. How can I access real-time and historical funding rate arbitrage data?
7. What are the minimum and maximum investment sizes for the arbitrage bot?
Minimum notional:
For USDⓈ-M contracts:
The minimum notional value is the greater of either the minimum notional specified for futures or the spot minimum order size, multiplied by a default multiplier of 1.5.
For COIN-M contracts:
The minimum notional is the maximum of the spot minimum order size or the product of the minimum trade amount and the contract multiplier, then multiplied by a default multiplier of 1.5.
For reference, the minimum notional value for futures can be found on the Binance Trading Rules page, and the minimum order size for spot is available on the Trading Rules page.
Maximum notional:
The maximum notional size is set by the first-tier cap for each asset, multiplied by n (with n defaulting to 0.1).
The first-tier cap for each asset is listed in the "Cross Margin Collateral Ratio" section here.
Example: For BTC, the first-tier cap is 40,000,000 USDT, which results in a maximum investment amount of 4,000,000 USDT for long positions or the BTC equivalent for short positions.
8. How does the bot manage risk?
The bot incorporates several risk management features such as:
Leverage settings
Buffer rates for position sizing
Compliance checks
Additionally, PM accounts undergo checks for margin and collateral rates to ensure positions remain sustainable under volatile market conditions.
9. Can I get liquidated while using the arbitrage bot?
Although the bot aims to minimize risk through its hedging strategy, extreme market conditions and delays in price adjustments between Spot and Futures markets could potentially lead to liquidation events. Users should maintain adequate margins and monitor their positions closely to manage risk effectively.
Examples:
Spot vs. Futures Mark Price Divergence
An extreme market divergence can cause a significant spread between the Futures and Spot prices. Suppose you go long in a USDⓈ-M BTCUSDT contract at 60,000, while the spot price remains unchanged, but the USDⓈ-M BTCUSDT price drops to 12,000. In this case, the account could be liquidated, as the uniMMR would drop below 105%.
Recurring Opposite Funding Rate
Additionally, if the funding rate changes against your position, it can gradually eat up your margin, eventually leading to liquidation.
10. What are the margin requirements, rules and specifications?
Unified Maintenance Margin Ratio (uniMMR):
The system calculates a Unified Maintenance Margin Ratio (uniMMR) to assess portfolio risk, balancing equity against the total maintenance margin requirements across all positions.
Note: Liquidation will occur when uniMMR goes below 105%.
Collateral rate:
The collateral rate for USDT and USDC is 1.0, while all other assets have a collateral rate of 0.95.
11. Supported trading symbols and symbol delisting events
A trading symbol will be available for arbitrage when it is supported in both margin trading and futures trading. If a symbol is delisted from either margin or futures trading, the Binance Funding Rate Arbitrage Bot will automatically close all arbitrage strategies associated with that symbol and conduct an automatic settlement.
12. Referral Rebate Specification
Referral rebates apply to spot trading but not arbitrage futures trading.
To learn more about Binance Trading Bots, visit the Trading Bots FAQs page.
