Lesson

How funding arbitrage works: spot + perp and perp + perp

Funding arbitrage means two opposite positions of the same size: their price changes cancel out while funding remains. We look at four schemes, when each one works and what price neutrality costs you.

AuthorAntonio MerklePublishedOctober 31, 20268 min read

In lesson 1 we saw that funding is paid by one side of the market to the other. You could simply open a short at a positive rate and collect payments, but then your result depends on price: a 5% rally wipes out a month of payments. Funding arbitrage removes the price dependence.

The idea: a delta-neutral position

Take two opposite positions of the same size in coins — for example, buy 1 ETH on spot and open a 1 ETH short on the perp. If ETH rises by $100, spot gains $100 and the short loses $100. The price change cancels out while the short’s funding remains. Such a position is called delta-neutral: its value hardly depends on the direction of price.

Scheme 1. Spot + short perp

When the rate is positive, the short gets paid. You buy the coin on spot and open a short of the same size on the same exchange’s perp. As long as the rate stays positive, the short receives funding every 8 hours (or more often).

The Ethena protocol uses the same logic at industrial scale: its USDe stablecoin is backed by spot plus a short perp. According to Ethena, over the three years to the end of 2024 average funding was 7.8% a year for BTC and 9.15% for ETH, but it was negative on 15.9% and 17.5% of days respectively. When rates fell in October–November 2025, USDe supply shrank from almost $15 billion to about $8.5 billion — a good illustration that funding is not guaranteed.

Scheme 2. Perp + perp on two exchanges

The long is opened on the exchange where the rate is lower (or negative — then the long gets paid), the short on the exchange where it is higher. Profit per payment equals the rate difference: short exchange’s rate − long exchange’s rate. These are exactly the pairs the P2P.Army funding scanner shows.

Scheme 3. Negative funding

At a negative rate the long gets paid. Hedging it with a spot short means borrowing the coin on margin and selling it — you pay interest on the loan, and for many altcoins borrowing is unavailable or expensive. So in practice negative funding is more often collected with scheme 2: a long perp where the rate is negative and a short perp where it is near zero or positive.

Scheme 4. One payment before funding

Since the payment goes to whoever holds a position at the funding timestamp, it is tempting to enter a minute before and exit right after. In reality this almost never pays: four trades (entry and exit on two legs) cost fees, entry and exit lose the price spread and slippage, and prices often move against those trying to “catch” the payment right before funding. This only pays off with a large rate difference and low fees — not for your first trades.

Price-neutral does not mean risk-free

• The rate changes every interval. Positive today can turn negative tomorrow, and the same position starts paying.
• The legs sit on separate margin. One leg’s profit cannot be moved to the other instantly, especially across exchanges.
• Prices on exchanges diverge. The price spread between the long and the short can widen and eat several payments.
• Fees and slippage. They are paid up front, while funding arrives gradually.

We cover all of this in detail: how to calculate returns in lesson 3, risks in lesson 6. Spot–futures setups, where both the rate and the price spread matter, are also shown by the P2P.Army futures screener.

About the author

Antonio Merkle

Crypto expert, arbitrage trader and investor

Crypto expert and hands-on crypto arbitrage trader, investor and software developer with over 20 years of experience. On the P2P.Army blog he covers exchange news, P2P and cross-exchange arbitrage.

• Crypto arbitrage
• P2P arbitrage
• Cross-exchange arbitrage
• Crypto exchanges
• Investing
• Software development

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