Funding Arbitrage - How to Start
How funding behaves and how to trade it
There is a unique type of futures contract in the crypto world, perpetual futures.
With regular futures you have an expiry which naturally drives the price of the future towards the price of the underlying.
Perpetual futures don’t have an expiry though so you need a different mechanism to ensure that the price of the future follows the price of the underlying.
This mechanism is funding payments. Generally, whenever the perp is below the underlying shorts pay longs and whenever the perp is above the underlying longs pay shorts.
This way people are enticed to go buy the perp when it’s below the underlying, pushing price up and vice versa.
Table of Content
Funding Calculation
Not just about Funding Rates
Statistical Properties of Funding Rates
Low Cap Funding vs High Cap Funding
Funding Arbitrage
Cross Exchange Funding Arbitrage
1h vs 4h vs 8h Funding
Final Remarks