Hong Life CalculatorsUnderstanding the funding rate arbitrage calculator — concept and principle
Funding rate arbitrage (often called a cash-and-carry or basis trade on perpetual futures) means buying a coin on the spot market and shorting the same amount in a perpetual swap. Price moves on the two legs roughly cancel, and when funding is positive the short leg receives regular funding payments. This calculator estimates the funding you collect, subtracts trading fees and shows the return on the capital tied up in both legs.
How it is calculated
- Funding collected = position size × funding rate per 8 hours × 3 × days. Three payments a day assumes the common 8-hour schedule.
- Fees = position size × total fee percentage (enter the combined cost of opening and closing both legs).
- Net profit = funding − fees.
- Annualised return on capital = net profit ÷ (2 × position size) × 365 ÷ days, because you fund both the spot leg and the futures leg.
- Funding APR per leg = rate × 3 × 365, a simple (non-compounded) annual rate.
The principle
A perpetual swap has no expiry, so exchanges keep its price near the spot index with funding: when the perpetual trades above spot, longs pay shorts; when it trades below, shorts pay longs. Holding spot and shorting the perpetual makes you market-neutral, so your profit comes from that payment stream rather than from guessing price direction. The trade only pays while funding stays positive.
Worked example
- Inputs: 10,000 per leg, 0.01% per 8 hours, 30 days, total fees 0.2%.
- Funding = 10,000 × 0.0001 × 3 × 30 = $90.00.
- Fees = 10,000 × 0.002 = $20.00. Net profit = 90 − 20 = $70.00.
- Capital = 2 × 10,000 = 20,000. Annualised = 70 ÷ 20,000 × 365 ÷ 30 = 4.26%.
- Funding APR per leg = 0.0001 × 3 × 365 = 10.95%.
How to read the result
The gap between 10.95% per leg and 4.26% on capital shows how much doubling the capital and paying fees reduce the headline rate. Short holding periods are hit hardest by fees, so check how many days of funding it takes just to cover them (here about 6.7 days). Compare the final figure with a risk-free deposit rate; if it is not clearly higher, the extra risks may not be worth it.
Common mistakes
- Assuming the current funding rate will stay the same; it changes every interval and can turn negative.
- Forgetting that some exchanges and contracts pay funding every 1 or 4 hours, not every 8.
- Over-leveraging the short leg, which can be liquidated in a sharp rally even though the spot leg gains.
Frequently asked questions
How much is 0.01% every 8 hours per year?
About 10.95% a year per leg as a simple rate, before fees and before allowing for capital on both legs.
Is funding rate arbitrage risk-free?
No. Price risk is mostly hedged, but funding, liquidation and counterparty risks remain.
Can I use less capital?
Using margin on the short leg reduces capital but raises liquidation risk; the calculator assumes both legs are fully funded.
Sources: BitMEX, Perpetual Contracts Guide (funding mechanism documentation). · Binance Futures documentation, Introduction to Funding Rates.