“Funding arbitrage” can refer to different trades. In a cash-and-carry position, a trader holds spot and shorts a perpetual or dated future. In a cross-venue funding trade, the hedge may sit on another contract or exchange. A perpetual payment is only one cash-flow line: the basis between legs can widen, the rate can reverse, the hedge can become uneven, and collateral or execution can force an early exit.

Separate dated futures carry from perpetual funding

A dated future has an expiry date. Its price difference from spot is commonly called the futures basis; the contract eventually settles or is delivered under its own terms. A perpetual has no expiry, so venues use recurring funding rules to influence the relationship between contract and reference prices. A spot-long/perpetual-short position can collect funding under a positive-rate convention, while a spot-long/dated-futures-short position earns or loses through the changing basis and settlement. These trades share a hedge idea but have different cash flows, calendars and contract rules. Do not add a funding estimate to a dated-futures backtest as if the instruments settled the same way.

The Bank for International Settlements’ crypto carry paper studies spot/futures basis and cash-and-carry in Bitcoin and Ether markets. It is useful background on why observed carry varies and why margin demands can rise during drawdowns. It is a historical market study, not a current rate screen, risk model or proof that an individual hedge will converge.

Name the strategy before calling it arbitrage

Document both legs, quantities, contract multipliers, price references, venues, collateral and rebalancing rule. One unit against one unit only approximates a hedge when both contracts represent the same underlying amount and quote currency. A spot-long/perpetual-short position remains exposed to changes in the basis between the two prices. A funding-only position on a derivative without an offsetting leg retains directional price risk. Two legs on different venues add transfer, access and counterparty dependencies, and a stablecoin or collateral mismatch can change the result even when the crypto quantity appears matched.

Funding mechanics are venue- and contract-specific. Hyperliquid documents hourly payments and a positive-rate convention in which longs pay shorts; its payment calculation uses position size, oracle price and funding rate. Binance’s USDⓈ-M documentation describes funding amount as position notional multiplied by the applicable rate and defines notional using mark price and contract size, while also documenting contract-specific intervals. These pages are examples of different venue rulebooks, not a universal formula or a current quote. Check the exact contract, quote and collateral currency, rate unit, event time, reference price, cap and eligibility rule. Preserve the settlement actually posted; never extend a displayed rate across future events. See the venues’ funding rules, contract specifications and Binance funding FAQ.

Reconcile the two legs before costs

A two-mark example with matched units

Assume, purely for arithmetic, a USD-linear pair with one spot unit bought for $100 and one perpetual unit sold short at $100. The perpetual basis is contract price minus spot price. At an interim mark, spot is $104 and the perpetual is $106. At the exit mark, spot is $105 and the perpetual is $106. A made-up ledger records two funding credits of $0.05 and $0.03 to the short leg. They are invented cash entries; no rate, interval or market observation is implied.

Mark Spot price Perpetual price Basis Spot P&L to date Perpetual P&L to date Funding credited to date Combined before other costs
Entry $100 $100 $0 $0 $0 $0 $0
Interim $104 $106 +$2 +$4 −$6 +$0.05 −$1.95
Exit $105 $106 +$1 +$5 −$6 +$0.08 −$0.92

For equal one-unit legs, price P&L before funding is the negative of the basis change: the basis moves from $0 to +$1, so combined price P&L is −$1. Adding the assumed $0.08 of posted funding leaves −$0.92 before transaction and financing costs. The interim mark matters: basis first widens to +$2, and the combined mark plus assumed funding reaches −$1.95 before later improving. The hedge therefore has a path, not just an entry and exit.

The example excludes entry and exit fees, spread, slippage, spot borrow if the spot leg is short, transfers, collateral opportunity cost, contract multipliers and currency conversion. It also assumes both legs fill at the printed prices and the funding entries are credited to the same account whose P&L is being summarized. Real ledgers must state whether P&L is realized or marked, which price each leg uses, how cash collateral is valued, and whether costs are already embedded in fills. Do not deduct spread twice when the recorded execution prices already include it.

cash-and-carry P&L bridge with a widening basisA fictional one-unit spot long rises five dollars while a matched linear perpetual short loses six dollars as the perpetual moves from 100 to 106 and spot to 105, widening basis by one dollar. Two assumed funding credits posted to the short leg total eight cents. Net is a 92-cent loss before fees and other costs; all component bars use one shared linear scale.ONE MATCHED UNIT · FICTIONAL PRICES · COMPONENTS IN DOLLARSEntry spot / perp: $100 / $100 · exit: $105 / $106 · basis widens $1LOSSGAIN$0 · all bars use the same 50 px per $1 scaleSpot price P&L+$5.00Perpetual price P&L−$6.00Short-leg funding · 2 credits+$0.08Combined before other costs−$0.92Price P&L = +$5 − $6; add $0.08 posted funding → −$0.92 · fees, spread, borrow and collateral omitted
A fictional one-unit spot long rises five dollars while a matched linear perpetual short loses six dollars as the perpetual moves from 100 to 106 and spot to 105, widening basis by one dollar. Two assumed funding credits posted to the short leg total eight cents. Net is a 92-cent loss before fees and other costs; all component bars use one shared linear scale. Illustrative teaching graphic · not live market data
fictional carry basis and cumulative marked P&L pathA matched one-unit spot-long and perpetual-short illustration begins with zero basis, widens to a two-dollar perpetual premium at the interim mark, then narrows to one dollar at exit. Combined marked price P&L plus explicitly assumed posted funding moves from zero to minus $1.95 and minus $0.92. Fees, borrow and collateral costs are excluded; no values are live market data.THE HEDGE CAN LOSE WHILE FUNDING IS RECEIVEDDOLLARS PER MATCHED UNIT · EACH SERIES HAS ITS OWN LEGEND−$2−$1$0+$1+$2EntryInterim markExit mark$0.00+$2.00+$1.00$0.00−$1.95−$0.92Perpetual minus spot basisCombined marked P&L + posted fundingFictional path · assumptions and omitted costs are described in the article
A matched one-unit spot-long and perpetual-short illustration begins with zero basis, widens to a two-dollar perpetual premium at the interim mark, then narrows to one dollar at exit. Combined marked price P&L plus explicitly assumed posted funding moves from zero to minus $1.95 and minus $0.92. Fees, borrow and collateral costs are excluded; no values are live market data. Illustrative teaching graphic · not live market data

Ask what basis move the carry can absorb

For equal one-unit legs, an initial basis of $0, a total signed funding credit of $0.08 and no other costs produce this simple sensitivity. The pre-cost result is negative basis change plus signed funding; fees, borrow and collateral reduce it.

Ending basis change Basis P&L Funding Result before costs
−$1.00 (basis contracts) +$1.00 +$0.08 +$1.08
$0.00 $0.00 +$0.08 +$0.08
+$1.00 (basis widens) −$1.00 +$0.08 −$0.92

With these assumptions, basis must contract by at least eight cents just to offset the funding before fees, spread, borrow or collateral costs. A break-even line in a simplified sensitivity is not a forecast: rate reversal, basis path, partial fills, changing hedge size and margin can dominate the final result.

basis change and funding break-even sensitivity for a matched carryWith an initial basis of zero and fictional net posted funding of eight cents, one-unit basis changes of minus one dollar, zero and plus one dollar produce pre-cost results of plus $1.08, plus $0.08 and minus $0.92. The result is negative basis change plus funding. Any transaction, borrow or collateral cost moves break-even against the position.EIGHT CENTS OF FUNDING DOES NOT ABSORB A ONE-DOLLAR BASIS MOVEPRE-COST RESULT = − CHANGE IN BASIS + $0.08 POSTED FUNDING · SAME ONE-UNIT LEGS$0+$1.08Basis contractsending basis change −$1.00+$0.08Basis unchangedending basis change $0.00−$0.92Basis widensending basis change +$1.00Fictional sensitivity · costs are excluded · basis convergence is not guaranteed
With an initial basis of zero and fictional net posted funding of eight cents, one-unit basis changes of minus one dollar, zero and plus one dollar produce pre-cost results of plus $1.08, plus $0.08 and minus $0.92. The result is negative basis change plus funding. Any transaction, borrow or collateral cost moves break-even against the position. Illustrative teaching graphic · not live market data

Account for the path between entries and exits

Calculate the cash flows separately: entry and exit fees, spread and slippage on each leg, each posted funding payment, borrow where applicable, collateral opportunity cost, transfers and basis change. A hedge ratio based on current notional can drift as prices move. Rebalancing reduces some exposure but creates more orders and costs. If only one leg fills, the account temporarily holds directional exposure; record how the rule handles a rejected or partial fill before treating the pair as hedged. If the legs sit on separate venues, separately test access, withdrawal restrictions, transfer delays and the possibility that the venue holding one leg cannot be reached when the other leg needs adjustment.

A mark-price move can consume margin before two prices converge. A paper “net zero” exposure does not guarantee offsetting margin treatment across products or venues. The Bank for International Settlements’ research on crypto carry documents substantial time variation and discusses drawdowns, funding risk and margin/liquidation frictions in cash-and-carry exposures. Those study findings are specific to the paper’s sample and markets; they are not a live rate or expected return for a reader.

cash-and-carry research and position review workflowFour research stages identify both instruments and units, verify the pair's actual fills, monitor basis, posted funding and each leg's margin, then unwind and reconcile. Partial fills, unhedged exposure or a breached limit route to a predeclared risk response. The workflow sends no orders and is not a strategy recommendation.WRITE THE FAILURE RESPONSE BEFORE OPENING EITHER LEG01 · VERIFYcontract · unit · rulecollateral · venue02 · FILL BOTHcapture size · pricerecord time · fees03 · MONITORbasis · posted fundingmargin · leg mismatch04 · UNWINDclose both legsreconcile all costsPartial fill · unhedged exposure · limit breachUse the predeclared risk response; do not assume the hedge is completeFunding / basis changeRecheck limits and exit rulesEducational review only · no orders are sent · no outcome is promised
Four research stages identify both instruments and units, verify the pair's actual fills, monitor basis, posted funding and each leg's margin, then unwind and reconcile. Partial fills, unhedged exposure or a breached limit route to a predeclared risk response. The workflow sends no orders and is not a strategy recommendation. Illustrative teaching graphic · not live market data

Build a conservative research test

Before calculating a result, write down the evidence needed for each ledger line:

  • Spot leg: exact market, traded size, quote currency, fill time and price, and whether the history records trades, candles or midpoint estimates.
  • Derivative leg: instrument type, multiplier, expiry or funding schedule, fill and mark-price fields, collateral currency and account margin mode.
  • Funding or settlement: raw signed rate or settlement amount, event timestamp, eligible position size, reference price and venue rule in force at that time.
  • Costs and capital: both legs’ fees, spread and slippage treatment, any borrow or transfer charge, margin posted on each venue and any collateral conversion.
  • Missing evidence: retain a gap as unknown and exclude it only under a rule declared before reviewing the outcome; do not substitute zero funding or a perfect fill.
two-leg carry research and risk review workflowA four-stage educational workflow verifies both instruments and their units, records both fills, monitors separate basis funding and margin evidence, then unwinds and reconciles all cash flows. Partial fills, funding reversal, basis widening or a margin warning route to the predeclared risk response, not an assumed hedge.A HEDGE IS A PROCESS TO MONITOR · NOT A GUARANTEE1 · SPECIFYcontract · unit · venuemargin · unwind rule2 · ESTABLISHspot long + perp shortconfirm both fills3 · MONITORbasis · posted fundingeach leg's margin4 · EXITclose · reconcileretain the recordPartial fill / failed legFollow the prewritten unhedged-position responseFunding, basis or margin changesRecalculate against limits; do not assume convergenceResearch workflow only · no orders are sent and no execution outcome is promised
A four-stage educational workflow verifies both instruments and their units, records both fills, monitors separate basis funding and margin evidence, then unwinds and reconciles all cash flows. Partial fills, funding reversal, basis widening or a margin warning route to the predeclared risk response, not an assumed hedge. Illustrative teaching graphic · not live market data

Use synchronized spot and contract observations, actual settlement records and a predeclared hedge rule. Preserve timestamps, price references and missing intervals. Model the orders needed to establish, rebalance and unwind both legs; state how the test handles one leg failing. Stress funding reversal, basis widening, wider execution costs and collateral requirements. Preserve liquidation, margin and account-cash evidence per venue; missing settlement or fill data should remain unknown rather than being silently set to zero. Evaluate the worst path and drawdown, not just cumulative funding receipts. The BIS study of crypto carry examines spot/futures basis and notes that cash-and-carry exposures can face margin increases and liquidations during drawdowns; its findings describe a historical sample, not a current expected return.

For a U.S. reader, the CFTC virtual-currency advisory flags platform safeguards, volatility, manipulation and cyber risks in spot markets, and explains that margin amplifies derivative exposure. It is general risk guidance, not an assessment of a hedged carry strategy or the rules for a specific person or venue. Check requirements for the relevant jurisdiction and instrument with an appropriate professional.

SuperQuant provides research examples, not an automated two-venue arbitrage system. Its included price histories are synthetic; simplified margin and execution assumptions do not validate a cash-and-carry strategy. Do not claim a funding strategy ran live from a backtest screenshot. Continue with the funding-rate guide, margin comparison, cost model guide and fees-and-funding worksheet. This is educational risk analysis, not a trade recommendation or guarantee.