Funding rate arbitrage provides arbitrage information about perpetual futures contracts and their spot equivalents in the market.
What is the funding rate?
Funding rate is primarily used to force convergence of prices between the perpetual contract and the underlying asset. It's a periodic payment made either by short to long traders or by long to short traders.
Funding rate is calculated based on the difference between the perpetual contract prices and spot prices. In an uptrend, the funding rate is positive and tends to rise over time. During these periods, traders who are long on a perpetual contract pay a funding fee to traders on the opposing side. Conversely, the funding rate is negative during bearish markets, which means traders who are short on a perpetual contract pay a funding fee to long traders.
What is the logic behind funding rate arbitrage?
Funding rate arbitrage is a delta neutral strategy that enables traders to hedge their positions in the futures market by taking an opposite position for the same trading pair in the spot market. Any loss originating from a price movement on the futures market will be offset by a profit on the spot market (and vice versa), which allows traders to earn funding fees without closing any of their positions.
For instance, a trader holding a short BTCUSDT position in the futures market can buy BTC in the spot market of an equivalent value to hedge his position against price volatility and collect funding fees.
How to access real-time and historical funding rate arbitrage data?
1. Go to Binance Futures and mouse over [Data]. Click [Futures Data] - [Arbitrage Data].
2. Under the [Funding Rate Arbitrage] tab, you can view the data for different contracts.
How to read and adjust the funding rate arbitrage data?
1. Position size
You can adjust the USDT position size, which is used to calculate the estimated 3-day revenue for USDⓈ-M and COIN-M trading pairs, respectively.
2. Portfolio
The portfolio column indicates the direction of the trades for arbitraging between futures and spot. Click the links to quickly access the corresponding trading interfaces for both markets and start arbitraging with order placements.
Based on the funding rate sign (positive or negative), the portfolio column will suggest arbitrage trade directions of a given trading pair:
- Positive cumulative funding rate: Short perpetual contract, buy on spot.
- Negative cumulative funding rate: Buy long perpetual contract, sell on spot.
You can also mouse over [Portfolio] to choose how to view the contracts. It can be based on the 3-day cumulative funding rate or on the next funding rate.
3. Funding rates
You can get a comparative overview of the funding rates history for a perpetual contract.
- 3 Day Cumulative Funding Rate: Sum of the recent funding rate settled over the past 3 days (= sum of the last 9 funding rates settled).
- Previous Funding Rate: Funding rate at the most recent funding fee settlement.
- Next Funding Rate: Projected funding rate at the next funding fee settlement.
You can display or hide the 7-day cumulative funding rate and 30-day cumulative funding rate. Click the preference icon and check or uncheck the box next to each.
4. Estimated 3-day revenue
An estimation of the revenue generated by the selected position size, taking the previous 3-day funding rate as reference.
- USDⓈ-M Futures: Estimated 3 Day Revenue = |3 Day Cum. Funding Rate %| * Position Size (USDT) / 2
- COIN-M Futures: Estimated 3 Day Revenue = |3 Day Cum. Funding Rate %| * Position Size (USDT)
Please note that the estimated 3-day revenue for USDⓈ-M Futures is divided by 2 based on the assumption that position size is in USDT, which needs to be divided equally into spot and futures investments.
5. APR
The annual rate generated by extrapolating the funding rate to a year.
- USDⓈ-M Futures: APR = |3 Day Cum. Rate%| / 3 * 365
- COIN-M Futures: APR = |3 Day Cum. Rate%| / 3 * 365
Please note that the APR for USDⓈ-M Futures is divided by 2 based on the assumption that position size is in USDT, which needs to be divided equally into spot and futures investments.
6. Spread rate
The spread between the perpetual contract and the mark price.
Spread Rate = (Last Price of the Sell Pair - Last Price of the Buy Pair) / Last Price of the Buy Pair
In periods of high volatility, the price between the perpetual contract and the spot price may diverge. In such instances, the premium increases or decreases accordingly.
7. Open interest
Total number of outstanding perpetual futures contracts that have not yet been settled.
8. Time to next settlement
The time left before funding fee payment and funding rate expiration. You can view the settlement information for each contract from the [Real-Time Funding Rate] tab.
9. Action
You can quickly navigate to the perpetual or spot markets via the [Trade] button.
