The futures spread trade: one expiry, two exchanges

The funding spread trade collects the difference between two perpetuals' funding for as long as it lasts. Dated futures have a version with an end date: short the future that trades dearest over its exchange's index, long the cheapest on the same expiry, and the gap between their premiums is what's left when both expire. Each coin's futures and options page finds the pair and works it out.

What is the futures spread trade?

A dated future trades above or below its exchange's index until it expires, and its premium is that gap as a rate a year (what a futures premium is). On one expiry, exchanges' premiums can differ by a point or two a year. The trade sells the dearer future and buys the cheaper, the same number of coins on each. If the coin rises, the long gains what the short loses; if it falls, the other way round. What's left is the gap between the two premiums.

Why is the gap locked in at expiry?

Because each future settles on its own exchange's index. At expiry a future is its index, so each premium runs to nothing. The short sold above its index and gains that premium; the long bought above its own and gives that premium up. Net, you keep the difference: what the two were apart when you opened.

Funding can change at every payment; this can't. Hold both legs to expiry and the gap comes out the same whichever way the price goes in between.

Why at the bid and the ask, not the middle?

A short sells at the bid, and a long buys at the ask. The Futures by expiry table compares premiums at the middle of each book, the fair way to compare exchanges (why the middle of the book), but nobody trades there. So the site works the trade out at its own prices: the short's premium at its bid, the long's at its ask.

Crossing both books costs half of each spread, and that can be all of the gap: a pair a point apart at the middle can still be no trade. If the short's premium at its bid isn't above the long's at its ask, the site leaves the pair out.

What do fees take?

Opening each leg costs its exchange's standard taker rate, on the leg's own value. The site counts both unless you switch them off, as Fees to open, and shows what's left as Net after fees. Two points a year on an expiry 40 days off is about a fifth of a percent of each leg, and two taker fees can take a good part of that.

Why two that settle together?

Most of these futures settle at 08:00 UTC; Coinbase's monthly futures settle at 4 pm in London, seven or eight hours later depending on the season. Between two settlements, one leg is open on its own, and the price can move against it with nothing on the other side.

So the site prefers two futures that settle at the same moment. It offers a pair that settles apart only when it pays clearly more after fees, half as much again, or when no pair that settles together pays at all, and says so, with each settlement time.

An example, worked through

Say coin X's index is $100.00 on two exchanges, A and B, with 40 days to the expiry they share:

Example figures, not market data.

At expiry each future is worth its own index, so on 99.26 coins the $0.26 between the premiums is $25.81, whether X ends at $80 or $120.

How to work it out on the site

On a coin's futures and options page, Bitcoin's or Ethereum's, the Futures spread trade sits folded under Futures by expiry: which future to short and which to long, each at its premium a year, how far Apart they are, and what that comes to To expiry, before fees.

1. Work it out for an amount opens it, on the expiry that pays the most a year after fees; the list of expiries says what each one pays.
2. Type the amount for Each leg. The coins it comes to are the same on both.
3. Read Net after fees: what's Locked in at expiry, less the Fees to open. Until expiry gives each settlement time, and a card for each leg its premium, its fee and what's on offer at its best price.

What it leaves out

• The two indices. Each exchange has its own, and the two can end a few dollars apart.
• Fees to settle. An exchange may charge one at expiry; it isn't counted.
• Margin. Each leg holds its own, on its own exchange, and a big move against one can close it before the other's gain helps.
• Size. A best price can hold less than your leg; the rest would trade worse, which the site warns of but doesn't count.
• Closing early. Before expiry neither premium has run to nothing, and closing both legs costs the spreads again.

Where to find it

On every coin's futures and options page, under Futures by expiry: Bitcoin's, Ethereum's, Solana's and XRP's. The futures and options index lists every coin with options on two or more exchanges, and the scoreboard sets each exchange's premiums against the others'. For the same idea on perpetuals, read the funding spread trade; for what a premium a year means, crypto futures premium.

Not financial advice. Prices move while you read them.