Funding rate arbitrage is a trading strategy that utilizes the funding rate mechanism in the perpetual contract market, simultaneously opening opposing positions of equal value in both spot and perpetual contracts for the same cryptocurrency.

When the funding rate is positive, longs pay shorts; when the funding rate is negative, shorts pay longs.

The goal of funding rate arbitrage is to earn stable funding fee income through trading between the spot market and the perpetual contract market.

Funding rate arbitrage is mainly divided into two categories:

Forward arbitrage: Funding rate is positive, borrow cryptocurrency to buy spot, short perpetual contracts.

Reverse arbitrage: Funding rate is negative, borrow cryptocurrency to sell spot, long perpetual contracts.

Reverse arbitrage carries higher risks, so forward arbitrage is recommended.