Funding Rate Arbitrage Calculator
Calculate the net carry from a market-neutral funding rate arbitrage position between two exchanges.
Formula
Go long on the exchange where you receive funding (or pay less) and short where you pay (or pay more). Net rate is what you earn per interval.
Examples
- Long on Binance (pay 0.01%), Short on Bybit (receive 0.03%)
- Net rate = 0.03% − 0.01% = 0.02% per 8h
- Per interval = $50,000 × 0.0002 = $10.00
- Daily = $10 × 3 = $30
- Annual = $10 × 1,095 = $10,950
- Short on A (negative rate = shorts receive = you receive 0.005%)
- Long on A would pay, but we're short — we receive
- Short on B (positive rate = shorts receive 0.02%)
- Wait — both sides receive if we're short on both. That's not market-neutral.
- Correct: Long on A (pay 0.005% since negative), Short on B (receive 0.02%)
- Net = 0.02% − (−0.005%) = 0.025% per 8h
- Position Size = $20,000
- Normalize to hourly: DEX = 0.05%/hr, CEX = 0.01%/8h = 0.00125%/hr
- Long CEX (pay 0.00125%/hr), Short DEX (receive 0.05%/hr)
- Net = 0.05% − 0.00125% = 0.04875%/hr
- Daily = 0.04875% × 24 × $20,000 = $234
- Annual = ~$85,410
Key Concepts
What is Funding Arbitrage?
Funding arbitrage exploits differences in funding rates between exchanges. You go long on the exchange with lower rates and short on the one with higher rates, capturing the spread while being market-neutral.
Market Neutral
By holding equal long and short positions, price movements cancel out. You profit only from the funding rate differential, not from directional price moves. This makes it a low-risk strategy.
Execution Risk
The main risks are: funding rates changing before the next interval, slippage on entry/exit, exchange counterparty risk, and the cost of maintaining margin on two exchanges.
Capital Efficiency
You need margin on both exchanges, so the effective capital deployed is 2× the position's margin requirement. A $50K position at 5× leverage needs $10K margin on each exchange = $20K total capital.
When to Enter and Exit
Enter when the funding spread is abnormally wide (well above historical average). Exit when the spread narrows to near zero or reverses. Monitor spreads in real-time — they can shift quickly.
Fees Eat Into Carry
Trading fees on open and close (4 trades total: open long, open short, close long, close short) reduce your net profit. Ensure the annualized carry exceeds your round-trip fee cost on both exchanges.
How Funding Rate Arbitrage Works
Funding rate arbitrage is one of the lowest-risk strategies in crypto derivatives. By simultaneously holding a long position on one exchange and a short position on another, you create a delta-neutral (market-neutral) position that profits from the funding rate difference.
The strategy works because funding rates differ between exchanges due to different user bases, liquidity profiles, and market dynamics. When one exchange has significantly higher funding than another, the spread represents a carry trade opportunity.
The key to profitable funding arbitrage is monitoring spreads continuously and acting when they're wide enough to cover your trading costs. Many professional firms automate this with bots that monitor rates across dozens of exchanges.
Frequently Asked Questions
How much capital do I need?
You need margin on both exchanges. At 5× leverage, a $50K position requires ~$10K on each exchange ($20K total). Factor in a buffer for price movements affecting margin.
What's a good funding spread to target?
A net annualized spread of 10%+ is generally worth executing after accounting for fees. Spreads of 20%+ are excellent but may not persist long.
What if funding rates change?
Funding rates update every interval. If the spread narrows or flips, you may need to close the position. Monitor rates and have alerts set for when your target spread falls below your threshold.