Positive Funding Arbitrage

Positive funding arbitrage is a strategy where a trader shorts a perpetual futures contract when the funding rate is positive and high. Because the funding rate is positive, the trader receives payments from long position holders at regular intervals.

To remain market-neutral, the trader must also purchase an equivalent amount of the underlying asset in the spot market. This allows the trader to earn the funding yield without being exposed to the price volatility of the asset.

This strategy is highly popular in crypto markets during periods of high leverage and bullish sentiment. However, the trader must be prepared for the funding rate to flip to negative, which would result in them paying the long holders instead of receiving payments.