High Funding Carry Avoidance

High Funding Rate — Carry Avoidance

When This Skill Activates

Apply this skill whenever any of the following conditions are observed on HyperLiquid perpetual markets:

• 1h funding rate ≥ 0.05% (≥ 0.36% per day, ≥ ~131% annualised)
• 8h predicted funding ≥ 0.10% on the target asset
• Funding has been positive and above 0.03%/h for ≥ 3 consecutive intervals
• Open interest is rising while price is consolidating (carry-funded leverage buildup)
• Basis (perp − spot) spread > 0.3% on any liquid asset

Core Principle

Funding carry is a silent tax on directional longs (and a rebate on shorts). In high-funding regimes, a position that is right on direction can still lose money or underperform a simple spot hold due to carry bleed. Every entry decision must be adjusted for the current funding regime before sizing.

Rule: Never enter or hold a leveraged long in a high-funding regime without explicitly accounting for carry cost in your expected-value calculation.

Step-by-Step Carry Assessment

1. Fetch Current Funding Data

Before entering any perpetual position, retrieve:

GET /info  →  fundingHistory(coin, startTime, endTime)
GET /info  →  meta + assetCtxs  →  funding field (current predicted)

Compute:

• Current 1h rate: from assetCtxs[i].funding
• Daily carry cost (long): funding_1h × 24 (approximate; funding compounds)
• 8h carry cost: funding_1h × 8
• Break-even move required: carry_per_8h / (1 / leverage) — the price must move this much in your favour just to cover funding over the next 8h interval

2. Classify Funding Regime

3. Carry-Adjusted Position Sizing

Apply a carry discount to the base Kelly/risk-budget sizing:

carry_discount = max(0.0, 1.0 - (funding_1h_bps / 5.0))
adjusted_size  = base_size × carry_discount

Where funding_1h_bps = funding rate in basis points (e.g. 0.05% → 5 bps).

At 5 bps/h: discount = 0%, position = 0 (do not enter long). At 3 bps/h: discount = 40%, position = 60% of base size. At 1 bps/h: discount = 80%, position = 20% reduction.

4. Adjust Take-Profit Targets

In elevated regimes, compress TP targets to account for carry bleed:

hold_hours_expected = estimated_time_to_target_hours
total_carry_cost    = funding_1h × hold_hours_expected

# Shift TP inward by carry cost:
adjusted_tp = raw_tp - (entry_price × total_carry_cost)

If adjusted_tp < breakeven, abort the trade — carry will consume the edge before price reaches the target.

Funding Harvesting Mode (Short Side)

When funding is extreme (> 0.10%/h sustained), consider a neutral funding harvest rather than a directional trade:

1. Short the perpetual at current market price (size: 0.5–1.0× normal)
2. Long equivalent notional in spot (or USDC-settled vault) to eliminate directional exposure
3. Net position: delta-neutral, earns funding rebate every 1h
4. Unwind when: funding drops below 0.03%/h OR basis compresses to < 0.1%

⚠ Liquidation risk: Ensure the short leg has adequate margin even if price spikes 15–20% before funding normalises. Use ≤ 2× leverage on short leg.

Failure Modes to Avoid

• Ignoring funding on short holds: Even 4h hold at 0.05%/h = 0.2% drag; at 5× leverage this is 1% of capital — larger than typical TP on a scalp.
• Using predicted funding as settled: Predicted funding can change every minute; confirmed settlement occurs at 0h, 8h, 16h UTC on HyperLiquid. Never assume predicted = settled for P&L accounting.
• Entering a long to "fade" high funding: Fading high funding by longing is a high-risk contrarian play. High funding can persist for days in strong bull regimes. Only fade funding if price is already showing reversal structure (lower-high on 1h, OI declining, spot/perp basis narrowing).
• Forgetting cross-asset contagion: If BTC perp funding is extreme, ETH and alt perp funding typically follows within 1–2 intervals. Apply regime check per asset, not just to the primary trade target.
• Funding harvest without delta hedge: Running a short perpetual without a corresponding spot long creates directional risk disguised as a carry trade.

Integration with Risk Controls

• Kill-switch trigger: If funding spikes above 0.15%/h AND position is long AND position is in drawdown > 1.5%, close immediately — carry will compound losses faster than recovery is likely.
• Max carry budget per session: Total carry cost across all open longs must not exceed 0.5% of total portfolio NAV per 8h interval.
• Reporting: Log funding_regime, carry_cost_per_8h, and carry_adjusted_size for every entry in the audit JSONL:

  {
    "event": "entry",
    "asset": "BTC",
    "funding_1h": 0.042,
    "carry_regime": "elevated",
    "carry_cost_8h_pct": 0.336,
    "base_size_usd": 10000,
    "carry_discount": 0.664,
    "adjusted_size_usd": 6640
  }
  

Quick Decision Tree

Is 1h funding > 0.05%?
├── YES → Is this a NEW long entry?
│         ├── YES → ABORT entry. Consider short or flat.
│         └── NO  → Existing long? Apply kill-switch check. If drawdown > 1.5%, close.
│
└── NO  → Is 1h funding between 0.03% and 0.05%?
          ├── YES → Apply carry discount to size. Compress TP.
          └── NO  → Funding neutral. Proceed with standard sizing.

HyperLiquid-Specific Notes

• Funding settles every 1 hour on HyperLiquid (not 8h like many CEXes). This makes carry bleed 8× faster than on Binance/Bybit at equivalent quoted rates. Adjust all carry calculations accordingly.
• assetCtxs[i].funding returns the predicted rate for the current interval; use fundingHistory for confirmed settled rates.
• Cross-margin accounts: funding payments reduce margin balance directly. Monitor marginSummary.totalRawUsd in the WebSocket user state feed to detect margin erosion from carry before it triggers a liquidation.
• HyperLiquid vault positions are not subject to perpetual funding — vault LP returns come from trading fees, not carry. Do not apply this skill to vault allocation decisions.