Frequently Asked Questions
Everything you need to know about funding rate arbitrage, perpetual futures, and the PerpRates platform.
Funding Rates Basics
What are funding rates in crypto?
Funding rates are periodic payments exchanged between traders holding long and short positions on perpetual futures contracts. They exist to keep the perpetual contract price aligned with the underlying spot price. When funding is positive, longs pay shorts. When negative, shorts pay longs. These payments typically occur every 8 hours on most exchanges.
How often are funding rates paid?
Most cryptocurrency exchanges settle funding payments every 8 hours (3 times per day). Common settlement times are 00:00, 08:00, and 16:00 UTC. However, some exchanges like Hyperliquid settle every hour, which can impact your arbitrage strategy and timing.
Why do funding rates exist on perpetual futures?
Unlike traditional futures that expire on a specific date, perpetual futures have no expiration. Funding rates serve as the mechanism to anchor the perpetual contract price to the spot market price. Without funding rates, perpetual prices could deviate significantly from the actual asset value, creating market inefficiencies.
What does a positive or negative funding rate mean?
A positive funding rate means long position holders pay short position holders. This typically occurs when the market is bullish and traders are willing to pay a premium to hold long positions. A negative funding rate means shorts pay longs, usually during bearish market conditions when demand for short positions exceeds longs.
How are funding rates calculated?
Funding rates are typically calculated based on two components: the interest rate (usually a fixed base rate) and a premium/discount based on the difference between the perpetual price and the spot index price. The exact formula varies by exchange, but generally: Funding Rate = Interest Rate + Premium Index. The premium adjusts based on how far the perp price deviates from spot.
What are basis points (bps) in funding rates?
Basis points (bps) are a unit of measurement equal to 1/100th of a percent (0.01%). So 10 bps = 0.10%. Funding rates are often expressed in basis points because the rates are typically small. For example, a funding rate of 0.01% would be written as 1 bps. This makes it easier to compare and calculate across different positions.
Arbitrage Strategy
What is funding rate arbitrage?
Funding rate arbitrage is a trading strategy where you profit from differences in funding rates between exchanges. You open a long position on an exchange with a low (or negative) funding rate and simultaneously open a short position on an exchange with a high funding rate. This creates a delta-neutral position where you collect the spread between the two rates.
What is delta-neutral trading?
Delta-neutral means your combined position has zero exposure to price movements. In funding rate arbitrage, you hold equal-sized long and short positions on the same asset. If the price goes up, your long profits while your short loses the same amount (and vice versa). Your profit comes purely from the funding rate differential, not from price speculation.
Is funding rate arbitrage risk-free?
No, funding rate arbitrage is NOT risk-free. While you're protected from price movements, you face several risks: liquidation risk if leverage is too high and prices move sharply, counterparty risk if an exchange fails, rate reversal risk if funding rates flip direction, execution risk from timing or slippage, and funding costs from fees and gas. Always use proper risk management.
How much capital do I need for funding rate arbitrage?
You can start with as little as $1,000-$2,000, but $5,000-$10,000 is more practical for meaningful returns after fees. The key consideration is that you need capital on multiple exchanges, and trading fees plus gas costs can eat into small position profits. Higher capital allows for lower leverage and better risk management.
How do I calculate my expected profit from arbitrage?
Expected daily profit = (Spread in bps / 10,000) x Position Size x Funding Periods per Day. For example: With a 10 bps spread, $10,000 position, and 3 funding periods: (10/10,000) x $10,000 x 3 = $3/day or ~$90/month. Remember to subtract trading fees (typically 0.02-0.10% per trade), gas costs, and account for potential slippage.
What spread is worth trading?
Generally, a net spread (after fees) of at least 5-10 bps per 8-hour period is considered worth trading. This translates to roughly 15-30 bps daily or 5-10% APY. Spreads below this may not cover fees and execution costs. Excellent opportunities show spreads of 20+ bps (60+ bps daily, 20%+ APY), but these are rarer.
PerpRates Platform
What exchanges does PerpRates support?
PerpRates monitors multiple decentralized exchanges (DEXs) including Hyperliquid, Drift (Solana), GMX, Aster, and Vest. We focus on DEXs because they offer faster execution, better transparency, and often higher funding rate spreads compared to centralized exchanges.
How often is the funding rate data updated?
Our data pipeline fetches rates from all exchanges continuously, so you always see near real-time funding rate information on the dashboard. Rate updates occur every few seconds for most exchanges.
How do I set up alerts for funding rate opportunities?
Pro tier subscribers can connect to our Telegram bot for instant alerts. Go to Settings to connect your Telegram account. You'll receive notifications when funding rate spreads reach significant levels.
Does PerpRates execute trades for me?
PerpRates is primarily a monitoring and analysis tool. We show you the opportunities and provide insights, but trade execution is handled by our admin trading system. This keeps your funds secure and ensures professional risk management.
Risks & Safety
Can I get liquidated doing funding rate arbitrage?
Yes, liquidation is the primary risk in funding rate arbitrage. Even though your overall position is delta-neutral, each leg (long and short) is held separately on different exchanges. If the price moves sharply, one side can get liquidated before the other adjusts. Use conservative leverage (3-5x max) and maintain adequate margin on both sides.
What happens if the funding rate spread reverses?
If the spread reverses (the exchange you're long on becomes higher rate than where you're short), you'll start paying funding instead of receiving it. Monitor your positions regularly and set alerts for spread changes. Have a clear exit plan - most traders close positions when the spread narrows below 2-3 bps or reverses.
What fees should I consider in my calculations?
Consider: 1) Trading fees (0.02-0.10% maker/taker) for opening and closing both positions, 2) Gas costs on each blockchain (varies by network congestion), 3) Funding rate changes during position lifetime, 4) Potential slippage on entry/exit, 5) Withdrawal fees if moving funds between exchanges. These can significantly impact net returns.
Is funding rate arbitrage legal?
Funding rate arbitrage is legal in most jurisdictions as it's a legitimate trading strategy. However, cryptocurrency regulations vary by country. Tax implications also differ - funding payments may be treated as income or capital gains depending on your jurisdiction. Consult a tax professional familiar with crypto in your region.
What is counterparty risk in DEX arbitrage?
Counterparty risk means the exchange or protocol could fail - through smart contract bugs, hacks, insolvency, or regulatory action. Your funds on that platform could be lost or frozen. Mitigate this by: only using established protocols with audited contracts, diversifying across multiple exchanges, and not keeping more capital on any single platform than you can afford to lose.
How much leverage should I use?
Conservative traders use 2-3x leverage, moderate traders use 3-5x, and aggressive traders might go up to 5-10x. We recommend starting with 3x or less. Higher leverage amplifies liquidation risk - a 20% price move against one leg at 5x leverage could liquidate that position. Lower leverage gives you more buffer for market volatility.
Technical Questions
How do I convert funding rates to APY?
To convert an 8-hour funding rate to APY: APY = Rate x 3 (periods per day) x 365 (days) x 100. For example, a 0.01% (1 bps) rate per 8 hours = 0.01% x 3 x 365 = 10.95% APY. For spreads, use the same formula with the spread value. Note that actual returns may vary due to compounding and rate changes.
What is the difference between mark price and index price?
Index price is the volume-weighted average spot price from multiple exchanges - it represents the 'true' market price. Mark price is used by the exchange for liquidations and unrealized P&L calculations. It's typically derived from the index price plus a moving average of the basis (difference between perp and spot). Understanding this helps avoid unexpected liquidations.
Why do different exchanges show different rates for the same asset?
Each exchange has its own trader community with different sentiment and positioning. If one exchange has more longs than shorts, its funding rate will be higher. Market making, arbitrage activity, and liquidity differences also affect rates. These discrepancies create the arbitrage opportunities PerpRates helps you find.
What is open interest and why does it matter?
Open interest is the total number of outstanding perpetual contracts. High open interest indicates a liquid market where you can enter/exit large positions with minimal slippage. Low open interest means fewer traders and potentially higher slippage. We recommend trading assets with at least $1M+ open interest on each exchange you're using.
Getting Started
What do I need to start funding rate arbitrage?
You need: 1) Capital (minimum $1,000-2,000, ideally $5,000+), 2) Accounts on at least 2 DEXs (e.g., Hyperliquid and Drift), 3) Crypto wallets for each chain (e.g., MetaMask for EVM chains, Phantom for Solana), 4) USDC or other stablecoins funded on each exchange, 5) Understanding of the risks involved, 6) A monitoring tool like PerpRates to find opportunities.
Which exchanges should I start with?
For beginners, we recommend starting with Hyperliquid and Drift. Hyperliquid offers deep liquidity, low fees, and hourly funding. Drift (on Solana) has fast settlement and competitive rates. Both have good track records and significant trading volume. As you gain experience, expand to other exchanges to access more opportunities.
How do I manage positions across multiple exchanges?
Keep a spreadsheet or use PerpRates' portfolio tracker to monitor both legs of each position. Record: entry prices, position sizes, funding rates at entry, liquidation prices, and accumulated funding. Check positions at least once daily, or set up alerts for significant spread changes or price movements.
What's the typical holding period for an arbitrage position?
Most traders hold positions for 1-7 days, adjusting based on spread behavior. Close when: the spread falls below your minimum threshold (typically 2-5 bps), rates reverse, better opportunities emerge elsewhere, or you've hit your profit target. Some traders hold for weeks if spreads remain favorable, but this increases exposure to various risks.
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