Funding rate arbitrage — the crypto carry trade — buys an asset on spot and shorts an equal amount on the perpetual. Price exposure nets to zero. What’s left is the funding payment, which flows to the short whenever the perp trades above spot.
In a bullish market with persistently positive funding, that payment can annualise to double digits with no directional bet.
The mechanics
Buy 1 BTC spot. Short 1 BTC perpetual. Every funding interval, if funding is positive, the short receives it. Hold as long as funding stays positive. Unwind both legs together when it doesn’t.
Capital is tied up on both sides — the spot purchase and the margin for the short — so returns are measured against the total deployed.
What it earns
Whatever funding averages over the holding period, minus costs. Bull markets have historically produced annualised funding of 10–30%. Bear markets produce near-zero or negative funding, at which point the trade pays to be held.
Where the risk hides
Funding turns negative and the position bleeds. Basis between spot and perp moves against you on entry or exit. The spot leg sits on one venue and the short on another, and one venue has a problem. Or the perp is liquidated in a spike before the spot leg can offset it, because liquidation is measured on the perp’s margin alone.
“Delta-neutral” describes price exposure. It doesn’t describe the other risks.
The systematic version
Monitoring funding across venues and assets, entering when the expected carry exceeds costs plus a risk buffer, and exiting on the first sign of regime change. Manually, the trade is tedious. Systematically, it’s a strategy.