Mistake #3 – When Can Funding Become Your Enemy?

Underestimating Funding

Underestimating funding is probably the most common reason arbitrage traders lose profit over time. If slippage is a one-time hit to your deposit, funding is a “silent killer” that can slowly erase your profit while you sleep.

Why You Pay When You Expected to Earn

In perpetual futures trading, there is a mechanism called the Funding Rate. These are periodic payments between traders that keep the futures price close to the spot market price.

Here’s how it works:

• Positive funding: The futures price is higher than spot. In this case, traders who opened Long positions (buyers) pay those who opened Short positions (sellers).

• Negative funding: The futures price is lower than spot. In this case, Short positions pay Long positions.

Funding payments usually occur every 8 hours (sometimes every 4, 2, or even 1 hour), and the amount depends directly on the size of your position.

What Is the Main Beginner Mistake?

A beginner finds a great Spot–Futures setup with a 1% spread.

1. They open a Short on futures.

2. The funding on this coin is negative (for example, -0.1% per period).

3. Every 8 hours, 0.1% of the total position size is deducted from their balance.

4. Result: Over 3 days (9 payments), they pay 0.9% in funding. From the original 1% spread, only 0.1% remains — which may not even cover trading fees.

What You Must Pay Attention To:

• Payment Direction

Always check whether you will receive funding or pay it. In ideal arbitrage, funding should work in your favor, adding to your spread profit.

• Abnormal Funding

Before listings or major news events, funding rates can spike to 0.5%–2% per period. In such moments, even a large spread can turn into a trap.

• Time Until Funding Payment (Countdown)

If you enter a trade 5 minutes before a funding payment, you will immediately lock in either a profit or a loss.