Funding Rate Skew

Funding rate skew refers to the divergence of funding rates across different cryptocurrency exchanges for the same underlying asset. This skew occurs because each exchange has its own set of traders and unique order flow, leading to localized supply and demand imbalances.

Arbitrageurs can exploit this skew by shorting the perpetual contract on an exchange with a high funding rate and longing the same contract on an exchange with a lower or negative funding rate. This strategy is more complex as it involves managing collateral across multiple platforms and navigating varying withdrawal fees and liquidity conditions.

Funding rate skew provides a window into the fragmented nature of the crypto derivatives market. It requires sophisticated execution algorithms to capture the spread before other market participants close the gap.