Working with Negative Funding Rates Case Study

We have prepared each lesson in text and video format.

In this lesson we will look at how to arbitrage a negative minus (negative) funding rate.

We will consider the case using the ID coin as an example, the funding rate is -0.4416%.

Let us remind you that financing rates come with “+” and “-” signs.

If the funding rate is positive at settlement, then long position holders pay short position holders. If the rate is negative, then holders of short positions pay holders of long positions.

A negative funding rate occurs when the futures price is lower than the spot price. And from this follows one of the strategies.

Let’s say you hold a coin for a long time and notice that the spot price has become lower, then the following strategy is possible:

1. Sell on the spot;
2. Buy long futures with 1x leverage;
3. You get a financing rate of 0.44%.
   
   Total: sold/bought at a profit + financing rate several times a day.
   

This works best when the value of the token drops.

Another strategy is that we go long on one exchange and short on another.

On Binance we go long and get a rate of 0.44%, and on buybit we go short and pay 0.28%. And the net profit will be 0.16%.