Funding Rate Arbitrage
Learn how to profit from funding rate differences across exchanges using a delta-neutral strategy that eliminates directional risk.
Delta-Neutral Concept
What is Delta-Neutral?
A delta-neutral position has no directional exposure to price movements. By holding equal long and short positions, price changes cancel out:
- Price goes up: Long profits, short loses (net zero)
- Price goes down: Short profits, long loses (net zero)
- You profit only from the funding rate differential
Position Structure
Equal size, opposite direction = No price exposure
Step-by-Step Strategy
Find the Spread
Identify assets with significant funding rate differences between exchanges. Look for spreads above 5 bps for meaningful opportunities.
Go Long on Low Rate Exchange
Open a long position on the exchange with the lowest (or most negative) funding rate. You'll receive funding if the rate is negative.
Go Short on High Rate Exchange
Simultaneously open a short position of equal size on the exchange with the highest funding rate. You'll receive funding here.
Collect the Spread
Hold both positions and collect the funding rate differential every 8 hours. Your profit is the spread minus trading fees.
Worked Example
Position Setup
| Position | Exchange | Funding Rate | Size |
|---|---|---|---|
| Long ETH | Drift | -0.0100% | $50,000 |
| Short ETH | Hyperliquid | +0.0500% | $50,000 |
Profit Calculation
Important Considerations
This example assumes stable funding rates. In practice, rates fluctuate constantly. Monitor your positions and be prepared to close if the spread inverts or narrows significantly.
Fee Considerations
Entry and exit fees on both exchanges (typically 0.02-0.10%)
Tip: Use limit orders for maker fees when possible
Blockchain transaction costs on DEX platforms
Tip: Batch transactions and time network activity
Price movement between order placement and execution
Tip: Use smaller position sizes or limit orders
Enter before funding payment, exit after receiving
Tip: Track exact funding times per exchange
Net APY Formula
Net APY = Gross APY - Annual Fees
Annual Fees = (Trading Fees * Rebalance Frequency) + (Gas Costs * 12 months)
PerpRates calculates net APY assuming monthly rebalancing and typical gas costs for each exchange.
Understand the Risks
Before trading, make sure you understand the risks involved in funding rate arbitrage.