Funding rate arbitrage: how it works, costs and real risks

Funding rate arbitrage is a trade that tries to earn funding payments without betting on price. You open two positions that cancel each other out, so a price move up or down leaves you roughly flat, and you set them up so the funding you receive on one side is bigger than the funding you pay on the other. It sounds like free money. It isn't, and this guide explains why, along with how the idea works and where to see funding gaps. It is educational, not advice.

A quick reminder of how funding works

Perpetual futures have no expiry date, so exchanges use funding to keep their price close to the spot price. When the funding rate is positive, longs pay shorts. When it is negative, shorts pay longs. The rate moves with demand: when lots of traders want to be long with leverage, funding rises and longs pay more. The full explanation is in funding rates explained, and the Hyperliquid specifics are in Hyperliquid funding rates.

Setup 1: the cross-exchange trade

Different exchanges often show different funding for the same coin. Suppose, with made-up numbers, one coin's funding works out to 30% a year on exchange A and 5% a year on exchange B, both positive. Longs on A pay a lot; longs on B pay little.

• Short $10,000 on exchange A, where shorts receive about 30% a year.
• Long $10,000 on exchange B, where longs pay about 5% a year.
• If the price rises, the long gains what the short loses, and the reverse if it falls. What is left is the gap: roughly 25% a year on $10,000, or about $2,500 over a full year if nothing changed, which it will.

The same logic works with negative funding. If shorts pay heavily on one venue, you go long there and short somewhere cheaper.

Setup 2: cash-and-carry

The classic version uses spot instead of a second perpetual. When funding is positive, you buy the coin on the spot market and short the same amount as a perpetual. The spot coin and the short cancel out on price, and the short collects funding from longs. There is no second funding payment to subtract, but your spot purchase ties up the full $10,000 and the short needs its own margin on top.

Why the gaps appear

• Different traders. Each exchange has its own crowd. If one venue is full of leveraged longs chasing a move, its funding rises while a quieter venue stays calm.
• Different formulas and caps. Exchanges calculate funding in their own way, with their own limits, so the same demand produces different rates.
• Different schedules. Hyperliquid pays funding every hour. Binance and Bybit pay every 8 hours on many markets, and every 4 or 1 hour on others. Comparing them fairly means converting both to the same period, such as a year.
• Capital is slow to move. Moving money between venues takes time and effort, so gaps can last longer than you might expect.

The costs people forget

A 25% annual gap shrinks fast once real costs are counted:

• Trading fees on four fills: opening and closing both legs. On a trade you hold for a few days, fees can eat most of what you collect.
• Slippage, especially on smaller coins where the gaps tend to be biggest.
• Funding changes every hour. The rate you saw when you opened is a snapshot. A gap of 25% a year can be 3% next day, or flip the other way.
• Margin on two venues. Your money is split, so each leg has less cushion than a single position would have.
• Moving funds between exchanges to rebalance, which costs time and sometimes withdrawal fees.

The real risks

• Liquidation on one leg. If the price jumps 30% and your short on exchange A runs low on margin, it can be liquidated while the matching long on exchange B sits in profit on a different platform. You are suddenly holding an unhedged position, often at the worst moment.
• Exchange risk. Your money sits on two platforms. An outage, a withdrawal freeze or a failure on either one breaks the hedge.
• Price differences between venues. The two perpetuals don't trade at exactly the same price, and in a fast market the gap between them can move against you.
• Execution risk. If one leg fills and the other doesn't, you are exposed until you fix it.

Low leverage on both legs reduces liquidation risk but also reduces the return on your capital. That trade-off is the whole game, and it is why funding arbitrage is mostly done by firms with automated rebalancing, not by hand.

How to spot funding gaps on sasa

The Funding section of sasa's Data page has two views. The first shows Hyperliquid funding, converted to a year's worth, for the 80 busiest markets, with lists for 'Longs pay most' and 'Shorts pay most'. The second compares Hyperliquid's funding with Binance and Bybit predicted funding for the same coins, sorted by the biggest gap, so the largest differences sit at the top.

Everything is shown as a yearly figure so that Hyperliquid's hourly payments and the 8-hour (or 4-hour) payments elsewhere can be compared directly. Positive means longs pay shorts. Before reading anything into a gap, check three things: is the market busy enough to trade without heavy slippage, has the gap been there for more than one reading, and does the coin show up in the Movers list for most open interest or most traded? Our guide to open interest explains why that matters. A large gap on a thin market usually reflects that thinness, not an easy opportunity.

The Data page only shows data; it doesn't place trades. sasa's Futures page offers Hyperliquid's markets with up to 20x leverage where it is available, but leverage can lose your whole position, and nothing here is financial advice.