Funding arbitrage: exploits funding rate discrepancies between long and short positions.
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Funding Arb is a funding rate arbitrage strategy across different crypto futures exchanges. The funding rate on perpetual contracts varies between Binance, Bybit, OKX and dYdX. When Binance has a funding rate of +0.1% and Bybit of -0.05%, Funding Arb shorts on Binance (receives funding) and longs on Bybit (pays less funding), capturing the difference. It is a cross-exchange arbitrage with reduced directional exposure (counterparty and execution risks).
Compares BTC/ETH perpetual funding rates across 5+ exchanges every 8 hours. When the funding gap between two exchanges exceeds 0.05% (per 8h, annualized ~22%), opens a hedged position: short on the highest funding exchange + long on the lowest. Delta neutral (both positions cancel out). Profit = funding difference × position size × duration.
Cross-exchange funding rates (Binance, Bybit, OKX, dYdX). Annualized funding gap. Open Interest per exchange (liquidity). Funding stability history. Trading fees per exchange.
Low
Arbitrage with reduced directional exposure. Returns depend on the funding gap and are not guaranteed. Works in both bull AND bear markets. Funding gaps are recurring in crypto.
Capital split between 2 exchanges (counterparty risk). Funding gaps correct quickly (short window). Trading and withdrawal fees on 2 exchanges. Asymmetric liquidation risk if one exchange has different slippage.
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