Effective Risk Management in Perpetual Futures Arbitrage

This strategy is the opposite of the previous one. If you enter a trade using the “Spot - Futures” concept, the “Futures - Spot” strategy can be used to exit it.

This approach is highly beneficial for token holders, as it allows you to earn additional income on previously invested coins under certain market conditions. It is the lowest-risk strategy, making it extremely difficult to incur a loss during arbitrage.

In this concept, we will be selling on the spot market and opening a long position in futures. The spot price should be higher than the long.

Imagine you purchased a token for the long term. You notice that the futures price of this token is lower than the spot price. This presents a great arbitrage opportunity because you can sell the token on the spot market and open a long position with 1x leverage. While prices can rise or fall, if the token was bought as a long-term investment, there’s no need to worry. After opening the long position, start monitoring the price convergence. When the prices align, close the long position and buy the token back on the spot market.

For instance, let’s say Token X is priced at $1,500 on the spot market and $1,400 on futures. After selling the token and opening a long position, you will make $100 in profit.

However, remember to consider the funding rate. If the funding rate is positive and you go long, you need to calculate whether this arbitrage is worthwhile.

Разберем арбитраж по стратегии фьючерсы + спот на практике, попутно зарабатывая на отрицательной ставке финансирования.

Let’s look at arbitrage using the Futures + Spot strategy in practice while earning on a negative funding rate.

We will consider the example of the ID token, with a funding rate of -0.4416%

Let’s recall that funding rates can be either positive (“+”) or negative (“-”).

- When the funding rate is positive at the time of calculation, holders of long positions pay holders of short positions.
- When the funding rate is negative, holders of short positions pay holders of long positions.

A negative funding rate occurs when the futures price is lower than the spot price, which leads to one of the key arbitrage strategies.

For instance, if you are holding a token long-term and notice that the spot price has dropped, the following strategy can be applied:

1. Sell on the Spot Market: Sell your tokens on the spot market where prices have decreased.
2. Buy Long on Futures with 1x Leverage: Enter a long position on the futures market with 1x leverage to maintain your exposure to the token.
3. Earn the Funding Rate: Benefit from the funding rate of 0.44%.

Summary: You sell and buy back with a profit, plus you receive the funding rate multiple times a day.

This strategy works best when the token’s price is falling.