A funding rate is a periodic payment used in perpetual futures contracts to keep their price closely aligned with the spot price of the underlying asset. Since perpetual futures, unlike traditional futures contracts, have no expiration date, funding rates help balance the price difference ("spread") between spot and futures prices.

When the funding rate is positive, traders holding LONG (buy) positions pay traders holding SHORT (sell) positions.

When the funding rate is negative, traders holding SHORT positions pay traders holding LONG positions.

In cryptocurrency futures trading, "Long" and "Short" represent two basic trading positions:

1. LONG position: A trader opens a LONG position if they expect the price of the asset to rise. To profit, the trader buys a futures contract at a lower price with the expectation of selling it back at a higher price later.
2. SHORT position: A trader opens a SHORT position if they expect the asset's price to fall. They sell a futures contract first, hoping to buy it back later at a lower price and profit from the price difference.

Both approaches allow traders to profit from price fluctuations, no matter which direction the market moves.

The most common settlement intervals for funding rates on crypto exchanges are:

• Every 8 hours (most common interval)
• Every 4 hours
• Every 2 hours
• Every 1 hour

Funding payments are made strictly at specific intervals. To receive the funding payment, you only need a position open even one minute before the designated funding settlement time.

Our arbitrage scanner at P2P.Army can alert you to new signals and send you reminder notifications (e.g., 15-30 minutes before the funding rate settlement) so that you have time to prepare and open your positions.

Traders typically use two approaches:

• Long-term positions: Traders hold long-term positions when positive funding spreads persist for days, weeks, or even months. Usually, traders set alerts for when these favorable spreads close, at which point they exit the positions and look for new profitable spreads.
• Short-term positions: Traders may quickly open positions shortly before settlement (e.g., 5-15 minutes before) to immediately collect the funding payment, closing positions right after settlement.

To reduce risks when entering positions, consider these guidelines:

1. Check liquidity first: Always verify there's enough market volume ("order book" liquidity) to open the desired position size simultaneously on both exchanges.
2. Verify risk and position size limits: Different exchanges may have different limits on maximum position sizes. If you plan to open $10,000 on one exchange, make sure the other exchange's limit matches or exceeds this amount. Otherwise, reduce your trade size to match the lower limit. It's best to start opening the position on the exchange with the tighter limit.
3. LONG or SHORT first? Analyze short-term market direction before deciding which position you'll open first, leveraging your trading experience. For instance:
   - If you expect the price to rise soon, consider opening the LONG position first.
   - If you expect the price to drop soon, open the SHORT position first.
4. LIMIT or MARKET orders? In more than 90% of situations, always use LIMIT orders. Limit orders are the safest approach, reducing the risk of significant slippage (a sudden change in price). MARKET orders can be used only for highly liquid, major trading pairs. If you must use them, consider breaking down your total trade into several smaller orders spaced over time. This approach helps market makers keep liquidity balanced and prevents severe price slippage.
5. Set Telegram price alerts: Price alerts will notify you ahead of potential liquidation scenarios. Even low leverage (X1) trades are at risk: if the underlying asset moves significantly (e.g., a 100% price move), your opposite position can still be liquidated.
6. Set alerts for funding spread closures: Receiving automatic notifications when profitable funding spreads close ensures you preserve your gains.

Funding-rate arbitrage is generally safe and low-risk up to about X3 leverage. Anything above X3 comes with notably higher risk. However, if your goal is to quickly capture a single funding payout (a few minutes trade), some experienced traders use leverage from X5 to X10.

Here is a quick reference guide for leverage risk assessment:

Leverage	Liquidation
X1	+100%
X2	+-50%
X3	+-33%
X4	+-25%
X5	+-20%
X10	+-10%
X20	+-5%

Comfortable and recommended leverage: X3 – Price must move ~33% before liquidation, giving you ample time to move funds between exchanges to balance positions.

Medium risk: X5 to X10 – Positions require constant monitoring and quick reactions.

Higher risk: Above X10 – Positions become increasingly risky and require carefully calculated decisions based on short-term market analysis.

Beginners should ideally stay X1 leverage until they gain more experience in futures arbitrage.

Funding rate arbitrage can become virtually risk-free—but only with larger capital at lower leverage. For instance, with a $20,000 portfolio, earning about $100 per day using X1 leverage would represent minimal risk.

But if your funds are lower—say $2,000—you may need to leverage your trades.

Example calculation: Suppose you have $2,000 total capital (divided as $1,000 per exchange). If the market allows collecting a funding rate of about 1% per trade each day, your earnings calculus might look like this:

Leverage	%, Liquidation	%, Profit	$, Profit
X1	+100%	+1%	$10/day
X2	+-50%	+2%	$20/day
X3	+-33%	+3%	$30/day
X4	+-25%	+4%	$40/day
X5	+-20%	+5%	$50/day
X10	+-10%	+10%	$100/day
X20	+-5%	+20%	$200/day

IMPORTANT TO KNOW: Your funding earnings apply to your total leveraged position size. So, if you have $1,000 with X10 leverage (position size is $10,000), a 1% funding rate payout results in a $100 gain:
Calculation formula: ($1,000 × 10 leverage) × 1% = $100

We strongly recommend beginners to start with a small deposit of no more than $200 total ($100 on each exchange) and use only X1 leverage. Trade like this consistently (at least one week) to learn how to place near-riskless arbitrage trades, familiarize with exchange interfaces, and build up your own statistics.

If after a period (generally one week) your trades have consistently been profitable, only then gradually increase your capital or leverage.

Although funding arbitrage may seem relatively straightforward, traders still face complexities in opening/closing positions, confusing exchange interfaces, and effectively tracking results. Starting conservatively and recording each trade in a spreadsheet will help you build discipline and control risks.

Liquidation won't occur if you constantly monitor your positions and rebalance funds to maintain safety margins.

For example, at X3 leverage, the liquidation occurs at approximately ±33% price movements. If the asset price drops suddenly by 15%, you'll experience a loss on one exchange but a corresponding profit on the other exchange. To manage your risk wisely, transfer the profits from the winning position to the losing position's exchange. Doing this rebalances your liquidation thresholds, keeping both positions safe.

In short, regular monitoring, discipline, and promptly transferring profits between exchanges will keep your funding arbitrage safe from liquidation.