Funding Fee Arbitrage Guide
1. What is Funding Fee Arbitrage?
Simply put, this takes place when traders hold two opposite positions with the same value in the "spots" and "derivatives" trading respectively. The aim is to hedge the risks brought by large price movements while you try to earn funding fees.
2. How to Earn Funding Fees?
USDT-margined Swaps are settled every 8 hours. After each settlement, traders shall pay or receive funding fees, depending on the current-period funding rate and their positions. When the funding rate is positive, long position holders will pay the funding fees to the short position holders. It will be the opposite when the funding rate is negative.
3. Why Use Funding Fee Arbitrage?
(1) Stable Earnings: The funding rate is usually positive. You can keep earning funding fees as long as you hold a short position in derivative trading and a “buy” position of the same value in spot trading. The strategy is especially applicable for traders who want to diversify their investments and seek long-term steady growth.
(2) Lower Risk: If you place a“buy” order in the spot trading and short a contract in derivative trading of the same value, the total value will not change with the price swings, except for the attendant risks.
(3) Simple Operation: Only three steps required; sit back and wait for your settlement and arbitrage.
4. How to Operate?
(1) Select a pair with high APY
(2) Buy the pair you select in the spot trading as below
(3) Short the contract of the same pair with the same value in the derivative trading as below
- Liquidation Risks: To reduce risk, traders may use 1X leverage for both spot and derivatives trading, or set the Stop-Limit feature in advance.
- Funding Rate: Funding rates will change with the markets. Please pay close attention to the funding rate changes and close your positions to lock your profits when you reach your target returns.
Risk Reminder: Digital asset derivatives are innovative investment products with significant price volatility. Trading digital asset derivatives involves significant risks. As a strategic tool, funding fee arbitrage does not guarantee any profits. Please make decisions prudently and rationally based on your risk preference.