Spot Futures Arb

Spot-Futures Arbitrage Skill

Delta-neutral strategy exploiting funding rate differentials between spot and perpetual futures markets.

Overview

Spot-Futures Arbitrage (also called "Cash and Carry" or "Funding Rate Arbitrage") is a market-neutral strategy that profits from the funding rate mechanism in perpetual futures contracts without taking directional risk.

How It Works:

1. Buy spot asset (e.g., 1 BTC)
2. Short equivalent perpetual futures (e.g., 1 BTC-PERP)
3. Collect funding payments when funding rate is positive
4. Hedge is delta-neutral: price movements cancel out

Typical APY: 10-50%+ depending on market conditions

The Funding Rate Mechanism

Perpetual futures have no expiry date. To keep the futures price anchored to spot, exchanges use a funding rate paid between longs and shorts every 8 hours.

• Positive funding (market bullish): Longs pay shorts → Short futures, earn funding
• Negative funding (market bearish): Shorts pay longs → Long futures, earn funding

Features

Core Features

• Multi-exchange monitoring: Track funding rates across Binance, Bybit, OKX, dYdX, Hyperliquid
• Auto-entry/exit: Open positions when funding exceeds threshold, close when opportunity ends
• Cross-margin optimization: Use margin efficiently across positions
• Real-time P&L tracking: Track funding collected vs trading fees

Supported Exchanges

Risk Management

• Max position size: Per-asset and total portfolio limits
• Funding threshold: Only enter when rate exceeds minimum (e.g., 0.01%)
• Auto-exit triggers: Close if funding turns negative beyond threshold
• Liquidation protection: Monitor margin ratios, auto-reduce if needed
• Hedging accuracy: Ensure spot and futures positions stay balanced

Configuration

interface SpotFuturesArbConfig {
  // Entry criteria
  minFundingRate: number;         // Minimum annualized rate to enter (e.g., 0.15 = 15%)
  minFundingPeriods: number;      // Consecutive positive periods before entry
  
  // Position sizing
  maxPositionSize: number;        // Max per-asset in USD
  maxTotalExposure: number;       // Max total portfolio exposure
  leverageMultiplier: number;     // Futures leverage (1x = no leverage)
  
  // Risk management
  stopLossRate: number;           // Exit if funding turns this negative
  minMarginRatio: number;         // Reduce position if margin falls below
  maxSlippage: number;            // Max acceptable slippage on entry/exit
  
  // Execution
  preferredExchanges: string[];   // Priority order for execution
  hedgeOnSameExchange: boolean;   // Keep spot and futures on same exchange
  rebalanceThreshold: number;     // Rebalance if hedge ratio drifts (e.g., 0.02 = 2%)
  
  // Notifications
  notifyOnEntry: boolean;
  notifyOnFunding: boolean;
  notifyOnExit: boolean;
}

Commands

Check Funding Rates

/arb funding [symbol]

Shows current and predicted funding rates across exchanges.

Start Arbitrage Position

/arb start BTC size=10000 threshold=0.10

Opens BTC spot-futures arb with $10k and 10% min annualized rate.

View Active Positions

/arb positions

Close Position

/arb close BTC

Show Statistics

/arb stats

Shows total funding collected, fees paid, net profit.

Example: BTC Funding Rate Arbitrage

Scenario:

• BTC funding rate: 0.03% per 8h (positive = longs pay shorts)
• Annualized: 0.03% × 3 × 365 = 32.85% APY

Execution:

1. Buy 0.5 BTC spot at $60,000 = $30,000
2. Short 0.5 BTC-PERP at $60,100 = $30,050
3. Every 8 hours, collect ~$9 funding (0.03% × $30,000)
4. Daily: ~$27, Monthly: ~$810, Yearly: ~$9,855

Costs:

• Trading fees: ~0.1% × 2 = 0.2% = $60
• Spot/futures spread: ~$50
• Total entry cost: ~$110

Break-even: ~4 days at current funding rate

Risks

1. Funding rate reversal: Rate can turn negative
2. Liquidation risk: If futures position gets liquidated
3. Exchange risk: Counterparty/platform risk
4. Execution risk: Slippage on entry/exit
5. Opportunity cost: Capital locked in hedge

Best Practices

1. Diversify across assets: Don't concentrate in single pair
2. Monitor margin closely: Keep margin ratio above 50%
3. Set auto-exit triggers: Close if funding turns significantly negative
4. Track all costs: Include fees, spread, and opportunity cost
5. Use multiple exchanges: Better rates and redundancy

Integration

Works with:

• exchange-connector: For spot and futures execution
• arbitrage-finder: Discovers opportunities
• risk-calculator: Position sizing
• alert-system: Notifications
• portfolio-tracker: P&L tracking

API

See spot-futures-arb.ts for implementation.