Funding rate arbitrage: how long to earn back the fees

The funding spread trade holds a short where funding pays shorts the most and a long where it costs longs the least, the same number of coins on each, so the price moves cancel out and the difference in funding is what's left. Opening it isn't free: each leg pays a taker fee, and selling into one book while buying from another costs a little more. So the question is how many days of funding it takes to earn that back. Signals on perpetuals has the figures for every coin at once.

How does the trade pay?

Funding passes between longs and shorts on each exchange: when the rate is positive, longs pay shorts; below zero, shorts pay longs. Exchanges pay it every hour, every eight hours or continuously, so the site writes every rate as a rate a year, to compare them (funding rates, side by side). The spread is the short leg's rate less the long leg's, in points a year, and a day of it is each leg's amount times the spread, over 365: on $10,000 a leg, a spread of 100 points a year is $27.40 a day.

What does it cost to open?

• Both taker fees, one on each leg, each on the leg's own value. Signals counts them at each exchange's standard rate, or at your own tiers.
• Crossing both books. The short sells at the bids on its exchange and the long buys at the asks on the other, walking down each book for your amount. On Signals that's Entry: what the short sells for against what the long costs, as a share and in dollars, walked for the top ten trades. Below zero it's against you, and it's lost if the two prices have met by the time you close.

Closing both legs later costs the fees and the crossing again; Signals counts opening alone.

How many days of funding earn it back?

Divide what it costs to open by what a day of funding pays: cost to open ÷ a day's funding is the days it takes. Say each leg is $10,000, both taker fees to open come to $10.00, and Entry is −0.12%, $12.00 against you: $22.00 to open.

Example figures, not market data.

Net, 24h on Signals is a day's funding less both fees to open, so a trade can show below zero there and still earn its fees back in a few days, if the rates hold. Entry isn't in it: where Entry is below zero, add it, as the table does.

Why check the last seven days?

Each exchange resets its rate at every payment, so a spread far wider today than over the week is likely a spike, and may be gone by the next payment (funding rate spikes). 7 days, beside Spread, is the same spread over the last seven days, from each exchange's funding history, where both publish one a browser can read.

Worked out on the week's spread, the days to earn it back are a steadier guess. Say, as an example, a coin's spread is 68.7 points a year today and 12.4 over the week, each leg $10,000, with $40.00 to open. At today's rates, $18.82 a day earns it back in 2.1 days; at the week's, $3.40 a day takes 11.8.

What can go wrong?

• Rates reset at every payment. The spread is today's, not a promise: it can narrow, vanish or turn round within hours.
• The two prices move apart. Price moves cancel out only while both exchanges' prices move together. If the short's rises against the long's by the time you close, the difference is lost, and it can be more than the funding paid.
• Each leg holds its own margin, on its own exchange. A big move against one can close it before the other's gain helps (liquidations explained).
• Payments come at different times. One exchange pays every hour, another every eight: a day at a rate a year is an average, and a leg closed just before its payment misses it.
• Closing costs as much again: both fees and crossing both books, which Signals doesn't count.

How to read it on Signals

1. Each leg (USD) is the size of each side: $1K, $10K, $50K or your own. Taker fees are each exchange's Standard rate, or My tiers from a coin page's Trade simulator.
2. Each row is a coin's widest funding spread on markets that aren't thin: Short where funding pays shorts the most, Long where it costs longs the least, each at its rate a year.
3. Spread is the short's rate less the long's, in points a year; 7 days, the same over the last seven days.
4. Net, 24h is a day at today's rates less both taker fees to open. The list is sorted by it, the most first.
5. Entry, $10K is what crossing both books costs for your amount, walked for the top ten; Held for, how long these two exchanges have been the widest pair.
6. Work it out opens a row: Funding, next 24h if today's rates hold, Fees to open, Crossing both books and Last 7 days, then each leg's rate, its payments and its open interest.
7. Under the list, On thin markets: marked, not hidden holds the pairs that count a market that traded under $100K in a day, whose rates run widest of all; then Perpetuals priced apart, one exchange's bid above another's ask on the same perpetual, after both fees.

Where to find it

Signals on perpetuals, from the header, or from the Signals button on the perpetuals index and each coin's perpetuals page (Bitcoin's, for one). Each coin's perpetuals page works out its own pair under Funding spread trade (Bitcoin's), and charts each exchange's payments over 7 or 30 days (funding rate history). The perpetuals scoreboard ranks the exchanges by open interest and funding. On spot, the gap that pays is in prices: crypto arbitrage after fees.

Not financial advice. Rates move while you read them.