# Funding Rate Hedging ⎊ Area ⎊ Resource 2

---

## What is the Hedge of Funding Rate Hedging?

This involves establishing an offsetting position specifically designed to neutralize the exposure to fluctuations in the funding rate of a perpetual contract position. A common technique pairs a long perpetual position with a short position in a related, non-perpetual instrument or an options strategy. Effective implementation requires accurately modeling the expected funding rate over the hedge horizon.

## What is the Risk of Funding Rate Hedging?

The primary exposure being managed is the unpredictable cost or income associated with the periodic funding payments on leveraged derivatives. Unfavorable movements can significantly erode the profitability of a position, even if the underlying asset price moves as anticipated. Prudent risk management mandates a dedicated strategy for this financing cost component.

## What is the Mitigation of Funding Rate Hedging?

The objective is to stabilize the net return of a leveraged position by neutralizing the financing leg's variability. This often involves trading basis risk between different exchanges or contract types to create a synthetic funding hedge. Successful mitigation preserves the intended risk/reward profile of the core trade.


---

## [Funding Rate Mechanism Integrity](https://term.greeks.live/term/funding-rate-mechanism-integrity/)

## [Funding Rate Manipulation](https://term.greeks.live/term/funding-rate-manipulation/)

## [Perpetual Swaps Funding Rates](https://term.greeks.live/term/perpetual-swaps-funding-rates/)

## [Perpetual Funding Rates](https://term.greeks.live/term/perpetual-funding-rates/)

## [Dynamic Funding Rates](https://term.greeks.live/term/dynamic-funding-rates/)

## [Dynamic Funding Rate](https://term.greeks.live/term/dynamic-funding-rate/)

## [Decentralized Funding Rate Index](https://term.greeks.live/term/decentralized-funding-rate-index/)

## [Funding Rate Options](https://term.greeks.live/term/funding-rate-options/)

## [Funding Rate Futures](https://term.greeks.live/term/funding-rate-futures/)

## [Funding Rate Spikes](https://term.greeks.live/term/funding-rate-spikes/)

## [Funding Rate Modeling](https://term.greeks.live/term/funding-rate-modeling/)

## [Funding Rate Stress](https://term.greeks.live/term/funding-rate-stress/)

## [Funding Rate Mechanics](https://term.greeks.live/term/funding-rate-mechanics/)

## [Perpetual Swap Funding Rate](https://term.greeks.live/term/perpetual-swap-funding-rate/)

## [Implied Funding Rate](https://term.greeks.live/term/implied-funding-rate/)

## [Funding Rate Adjustments](https://term.greeks.live/term/funding-rate-adjustments/)

## [Perpetual Swap Funding Rates](https://term.greeks.live/term/perpetual-swap-funding-rates/)

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---

**Original URL:** https://term.greeks.live/area/funding-rate-hedging/resource/2/