Indeed, there are quite a few new students entering in the past couple of days. This is a very classic U-based lossless arbitrage model, and many students have questions. Here, I will organize everyone's questions and provide a unified answer. (Binance has already launched a lossless fee rate bot)
First, let's talk about how U-based contracts ensure lossless arbitrage by converting to spot currency-based shorts, thereby stabilizing the interest earned from funding rates. If the current coin price is 70,000, and you buy one coin for 70,000, then transfer it to a currency-based contract for 1x shorting, you are shorting 1 coin. No matter how the coin price fluctuates, although there are gains and losses in the number of coins, the principal in U-based terms remains unchanged. If the coin price increases, shorting results in fewer coins, but the remaining amount of coins has increased in price, so the U sold and the initial 70,000 when you entered remains the same. Conversely, if the price drops, the same principle applies. That’s why it’s called a risk-free arbitrage strategy.
Later, when I have time, I will post specifically about how U-based contracts can conduct spot hedging arbitrage.
Question 1: If the market surges, will I get liquidated?
Answer: A 1x short in currency-based contracts will never get liquidated.
Question 2: If the rate turns negative, does that mean I will incur a loss?
Answer: Yes, but a negative rate requires a bearish overall market and a significant change in the quantity of short positions held. Generally, when the rate returns to 0.01%, you can close your position and sell the spot.
Question 3: Where can I find this ranking on Binance?
Answer: https://binance.com/zh-CN/futures/funding-history/perpetual/real-time-funding-rate…
Question 4: Can I make about 10% profit in a bull market? Can you sit still while coin prices reach new highs every month?
Answer: This discusses a risk-free U-based capital preservation arbitrage strategy. It is not in the same league as the risks of trading coins. Moreover, the profit is annualized at 10%.
Question 5: The actual daily return should be divided by 2 since your capital utilization rate is only 50%.
Answer: No need to divide by 2, as all funds are used to buy coins; there is no situation of U-based spot contracts being split in half.
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