Funding rate arbitrage is a strategy that uses the funding rate mechanism in Bitcoin perpetual contracts to conduct low-risk arbitrage. The funding rate is a mechanism introduced to keep the price of perpetual contracts consistent with the spot market price. When the market is bullish, the funding rate is usually positive, and traders holding long orders need to pay the funding rate to traders holding short orders; vice versa.
Funding Rate Arbitrage Basics
Funding rate arbitrage takes advantage of the fluctuation of funding rates and locks in the benefits of funding rates by conducting hedging transactions in the perpetual contract market and the spot market (or futures market) at the same time. The core of this strategy is to ensure that the long and short positions held in different markets hedge the market risks and obtain the risk-free benefits brought by the funding rate.