Funding Rate Arbitrage provides users with relevant arbitrage information about Perpetual Futures Contracts and their spot equivalents in the market.
What is Funding Rate?
The Funding Rate is primarily used to force convergence of prices between the Perpetual Contract and the underlying asset.
It is a periodic payment made either by short to long traders or by long to short traders, and it 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 position 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 BTCBUSD 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?
To view the Funding Rates Arbitrage data, go to Binance Futures and click [Information] - [Arbitrage Data]. Then, click [Funding Rate Arbitrage] above the table. You can also access the Funding Rates Arbitrage data directly here.
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.
You can click both 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 display Arbitrage trade directions of a given trading pair as per the following:
Positive cumulative Funding Rate: short perpetual contract, buy on spot.
Negative cumulative Funding Rate: buy long perpetual contract, sell on spot.
Please note that you can choose a display based either on the 3 Day Cumulative Funding Rate or on the Next Funding Rate by selecting the corresponding option.
3. Funding Rates - Provides a comparative overview of the Funding Rates overtime for a given perpetual contract.
- 3 Day Cumulative Funding Rate - Sum of the recent Funding Rate settled over the past 3 days (= sum of 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 also choose to display/hide the 7 Day Cumulative Funding Rate and 30 Day Cumulative Funding Rate by ticking or unticking the corresponding boxes.
4. Estimated 3 Day Revenue - An estimation of the revenue generated by the selected position size taking the previous 3 Day Funding Rates 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)
Taking the above Position Size as an example, the estimated 3 Day Revenue based on the corresponding Cumulative Funding Rate (0,0551%) is 2,758.35 USDT.
*Notice 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 / 2
- COIN-M Futures: APR = |3 Day Cum. Rate%| / 3 * 365
*Notice 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 = (The last price of the sell pair - the last price of the buy pair) / the last price of the buy pair
In periods of high volatility, the price between the perpetual contract and the mark price may diverge. In such instances, the premium increases or decreases accordingly.
Example:
Last price BTCUSDT pair : 30,560 USDT
Last price BTC/USDT pair : 30,570 USDT
Spread rate = (30,560 - 30,570) / 30,560 = -0,033%
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 Fees Payments and Funding Rate expiration.
9. Action - Allows traders to quickly navigate to Perpetual or Spot Markets on Binance via the “Trade” button.
