Plain definitions for the terms used across this site — funding, basis, delta-neutral construction, margin, liquidation and execution.
A
An annualised funding rate scales the current interval payment up to a year, assuming that print never changes.
A rate of 0.01% every eight hours is three payments a day — about 0.03% daily, or roughly 10.95% annualised if it held constant, which it does not. Annualised figures are a comparison tool between venues and assets, not a forecast of what an allocation will earn.
APR is a simple annual rate with no compounding; APY is the annual rate if interim credits are compounded.
A funding print every eight hours is not an APR you can multiply out and treat as a promise, and compounding those prints into an APY assumes each credit is reinvested at the same rate. Target ranges on this site are annualised illustrations of variable funding. They are not a compounded guarantee, and a negative-funding stretch reduces the realised figure.
B
Basis is the difference between an asset’s spot price and its futures or perpetual price.
A positive basis means the derivative trades at a premium; a negative basis means a discount. Persistent premium is closely linked to positive funding. Basis can compress as more capital chases the same spread, which is one reason funding-arbitrage returns are variable.
Basis convergence is the tendency of a futures price to move toward the spot price of the same crypto asset.
A dated future is pulled to spot by its expiry. A perpetual has no expiry, so convergence depends on the funding mechanism making a premium or a discount expensive to hold, and on capital willing to take the other side. Convergence can stall in a thin book, a venue halt, or a funding interval that is capped.
Basis spread is the size of the gap between spot and the derivative, often expressed in percentage or basis points.
A wide premium can mean richer funding; a compressed spread means less to collect. Execution must fill both legs close together or the spread you thought you owned is not the spread you get.
C
In crypto, a carry trade holds a position in order to collect a recurring yield — the funding rate or the futures premium — rather than to bet on price direction.
It is the same economic idea as cash-and-carry. On a dated future the carry is collected as basis converges at expiry. On a perpetual the carry is the sequence of funding payments, which can change sign. A carry trade is not a loan, and the yield is not contractual.
Cash and carry arbitrage is a market-neutral trade that buys an asset in the spot market and simultaneously sells a futures contract on the same asset, capturing the premium between the two prices.
The position is hedged against price direction: whatever the asset does, gains on one leg offset losses on the other. Profit comes from the futures premium converging to spot as expiry approaches — a return that is known at the moment the trade is opened. In crypto, the same logic is applied to perpetual contracts, which have no expiry; there, the premium is collected as a recurring funding payment rather than a single convergence. The main risks are margin stress on the short leg if the asset rallies sharply, and counterparty risk at the venue holding the position.
A cash and carry trade buys the asset in the spot market and sells a futures contract on the same asset to capture the premium between the two prices.
The position is hedged against price direction: gains on one leg offset losses on the other. Profit comes from the futures premium converging toward spot as expiry approaches — a return that is known, before costs, at the moment the trade is opened. Margin stress on the short leg and venue risk remain.
Counterparty risk is the chance that the venue or custodian holding capital fails to return it — through insolvency, halt, or operational failure.
Funding arbitrage requires balances on trading venues. Exchange failure, withdrawal suspension, or a liquidation cascade on one leg is the largest tail risk in the strategy and is not diversified by holding more assets. Named custody arrangements, when published, belong on the About page.
Cross margin shares one collateral pool across positions; isolated margin confines collateral to a single position.
Under cross margin, a winning leg can support a losing one, so a short perpetual is less likely to be liquidated while the hedge still needs it. Under isolated margin, a liquidation stops at that position's own collateral and cannot draw the rest of the account. Isolated limits damage from one position; cross keeps a two-leg hedge intact for longer and can spread a loss further if both legs are wrong.
Cross-exchange arbitrage captures a price or funding difference for the same crypto asset on two venues at the same time.
One leg may be spot on one exchange and a perpetual on another, or two perpetuals with different funding rates. The edge is the gap between venues. The added risks are transfer delay, mismatched margin, and two counterparties instead of one. A price that looks arb-able on a screen can close before both legs are filled.
D
Delta is how much a position's value changes when the underlying crypto price changes by one unit.
Long one coin of spot is about +1 delta. A short perpetual of the same size is about −1. Net delta near zero means the book is not taking a directional view. Delta drifts as marks, fills, and basis move, which is why a hedge is maintained rather than set once.
Delta hedging is the process of adjusting position size so that net sensitivity to the underlying price stays inside a defined band.
On a perpetual, mark price, partial fills and basis moves can leave a residual delta. The hedge is rebalanced by adding or reducing one leg until net delta is back inside the limit. Hedging reduces directional risk; it does not remove funding, slippage, liquidation or venue risk.
A delta-neutral position holds offsetting exposure to the same underlying so that a move in the asset’s price produces roughly equal and opposite P&L on each leg.
In a spot-perpetual pair, long spot is about +1 delta per unit and short perpetual is about −1, netting toward zero. The position is then driven by funding and basis rather than by whether the asset rises or falls. Neutrality is maintained by rebalancing as fills, mark price and hedge ratio drift — it is not set once and forgotten.
Drawdown is the peak-to-trough decline in the value of an allocation over a period.
Plans publish drawdown limits that constrain how far a book may fall before exposure is reduced. Maximum drawdown is a risk bound, not a promise that losses will stop there in a venue failure or a gap move. Conservative plans use tighter limits and a narrower asset universe.
F
The funding fee is the cash a crypto perpetual position pays or receives at the funding interval.
It is a transfer between longs and shorts, equal to position notional times the funding rate for that interval. It is not an exchange commission. Maker and taker fees are charged separately, on trades. A book can collect funding and still lose money to fees, slippage, or a hedge that is no longer matched.
The funding interval is how often a venue exchanges the funding payment between longs and shorts.
On most major venues the interval is eight hours, commonly at 00:00, 08:00 and 16:00 UTC. Some venues fund hourly. Annualising an interval rate assumes the current print persists, which it will not — use annualised figures only to compare venues, not as a return forecast.
The funding payment is the transfer between longs and shorts on a crypto perpetual at each funding interval.
When the rate is positive, longs pay shorts. When it is negative, shorts pay longs. A long-spot, short-perpetual book therefore collects in a positive-funding regime and pays in a negative one. The exchange facilitates the transfer; it is not the economic counterparty of a healthy book.
A funding rate is the periodic payment exchanged between long and short holders of a perpetual futures contract so that the contract’s price stays tethered to spot.
Because a perpetual never expires, exchanges cannot rely on a settlement date to force convergence. When the perpetual trades above spot, longs typically pay shorts; when it trades below, shorts pay longs. The size and sign of that payment are what a funding-rate arbitrage strategy earns or pays. Rates are quoted per interval, not per year, and they move with leverage demand.
Funding rate arbitrage is a delta-neutral crypto trade that holds spot against an offsetting perpetual so price exposure cancels and the funding payment remains. The usual book is long spot and short the perpetual when funding is positive; what is left after fees, slippage, and hedge error is the result, and the book pays when funding turns negative.
H
The hedge ratio is the size of the offsetting leg relative to the leg it is meant to neutralise.
A ratio of one means one unit of short perpetual for each unit of spot. The ratio drifts as marks, fills, and basis move, and it is reset when net delta leaves the band the book is run to. Matching margin, rather than notional, produces the wrong ratio and leaves residual price exposure.
I
The index price is a composite of spot prices for the same crypto asset across several venues, used as the fair-value reference for a perpetual.
Venues use it so a single thin market cannot set the mark. Funding and the premium are measured against the index, not against one exchange's last trade. A stale or manipulated constituent still moves the index, which is why the source list matters.
Initial margin is the collateral a venue requires before it will open a crypto perpetual position.
It is a fraction of notional, set by the leverage on that position. Posting it lets the short leg open. It does not pay the funding fee, and a move in the mark can consume it. The spot leg, held elsewhere or in the same account, is a separate balance until the venue's margin mode says otherwise.
L
Liquidation is the forced closure of a margined position when collateral falls below the venue’s maintenance requirement.
On a short perpetual, a sharp rally in the underlying consumes margin even if the spot leg is profitable on paper. If the two legs sit on different books or the hedge is late, the short can be liquidated while the long remains. That residual is directional risk the strategy is supposed to avoid.
The liquidation price is the mark price at which a venue will force-close a crypto perpetual because maintenance margin is no longer met.
For a short, that price sits above the entry. A hedge that is late, or that sits on another venue, can leave the short liquidated while the spot leg is still held — at which point the book is long the asset it was meant to be neutral to. The published price assumes the current margin and leverage; adding or removing collateral moves it.
The lock period is the time an allocation must remain in a plan before principal and net return can be withdrawn.
Early withdrawal is not available. The lock is what lets the book hold the hedge across funding intervals instead of being unwound on demand. The term, the target range, and the strategy mix are fixed for a position you already hold. Match the lock to capital you will not need; it is the most common mismatch when choosing a plan.
M
Maintenance margin is the minimum collateral a venue requires to keep a crypto perpetual position open.
If account equity on that position falls below it, the venue liquidates. On a short perpetual, a rally consumes maintenance margin even while the spot leg is in profit — and the spot profit is unavailable if it sits in another wallet or under isolated margin. The gap between initial and maintenance margin is the room the hedge has before a forced close.
A maker fee is charged when an order rests on the book and is later filled; a taker fee is charged when an order executes immediately against resting liquidity.
Hedging both legs as a taker pays the wider fee twice, once on spot and once on the perpetual. On a spread measured in basis points, that cost is often larger than a single funding interval. Maker execution reduces the fee and adds the risk that one leg fills and the other does not.
Mark price is the reference price a venue uses for margin and liquidation, as distinct from the last traded price.
Last price can spike on a thin print. Mark price is usually a fair-value blend of index and basis so that liquidations are less likely to be triggered by a single trade. Funding and unrealised P&L on perpetuals are typically computed from mark, not last.
A market-neutral strategy seeks return from a spread or relative value rather than from the direction of the broader market.
Funding-rate arbitrage is market-neutral by construction when delta is kept near zero. Neutrality does not mean risk-free: funding can invert, basis can compress, and venue failure is not hedged by holding more coins.
N
Negative funding is the state in which shorts pay longs, typically when the perpetual trades below spot.
A standard long-spot / short-perpetual book then pays out on the funding leg instead of collecting. Negative-funding regimes can last days or weeks. They are a normal market feature, not an exception, and they are one of the main ways this strategy loses money on its primary leg.
Notional value is the full economic size of a position — price times quantity — before leverage is applied.
A position posted with a fraction of its size as margin still has a notional equal to the coins it controls. Funding, trading fees, and liquidation thresholds are computed on notional, not on the cash posted. Two legs of a hedge must match in notional, not in margin, or the book is not neutral.
O
Open interest is the notional value of outstanding perpetual or futures contracts that have not been closed.
Rising open interest with a crowded long book often coincides with higher positive funding; falling interest can accompany a unwind. Reading funding without open interest and basis tells you little about whether a rate is likely to persist.
Order book depth is the size resting on the bid and the offer near the current price.
Thin depth means a hedge of any size walks the book and pays slippage. Funding arbitrage has two legs, so depth on both the spot book and the perpetual book matters, not only the headline spread. A quoted funding rate on a market that cannot absorb the hedge is not an executable yield.
P
In crypto, a perp — plural, perps — is shorthand for a perpetual futures contract, a margined derivative with no expiry.
On this site the word always means that contract, not a generic abbreviation. A perp is still a leveraged position with a funding payment, a mark price, and a liquidation price. The short form does not change the risk.
A perp DEX is a decentralised exchange that lists crypto perpetual futures, so margin and settlement run in a smart-contract engine rather than a centralised venue account.
The contract is still a perpetual: funding, mark price, and liquidation apply. What changes is the counterparty and the collateral rail — usually on-chain margin instead of an exchange balance. Liquidity, oracle design, and contract risk replace the centralised venue's custody risk; they do not remove it.
A perpetual contract is a crypto futures-style derivative that does not expire and is kept near spot by periodic funding between longs and shorts.
It is margined, marked to a venue price, and can be liquidated if collateral falls below the maintenance level. Without an expiry date, basis does not converge on a calendar — the funding rate is the mechanism that makes a premium or a discount expensive to hold.
A perpetual futures contract is a derivative that tracks an underlying asset but has no expiry date.
Dated futures converge to spot at expiry. Perpetuals never expire, so exchanges use a funding rate to keep the contract priced near spot. That recurring payment is the economic core of funding-rate arbitrage. Perpetuals are typically margined and can be liquidated if the short leg is stressed.
A perpetual swap is a crypto derivative with no expiry that tracks an underlying asset and uses a funding payment to stay near the spot price.
On most venues the name is interchangeable with perpetual futures contract. The economic object is the same: a margined contract whose carrying cost is the funding rate, not a dated settlement. "Swap" here does not mean an interest-rate swap or a token-for-token exchange.
The premium index measures how far a crypto perpetual's traded price sits from its index price, usually as a percentage.
It is an input to the funding rate. A persistent premium — perpetual above spot — pushes funding positive, so longs pay shorts. A discount does the opposite. The premium is a price gap, not the cash payment; the funding fee is what turns that gap into a transfer.
R
The reserve ratio is the share of an allocation kept as unencumbered collateral rather than deployed in the hedge.
It is the buffer that tops up margin when the short leg is stressed. A higher reserve means less notional working and a smaller chance of a forced reduction. It is a risk setting on the plan, not a return, and it does not protect against a venue that cannot pay the balance back.
S
Settlement is the crediting of profit and loss to an allocation, and at maturity the return of principal plus net return.
Itemised P&L is posted on the venue funding cycle, commonly every eight hours. The allocation itself settles when the lock period ends: principal and net return move to the account balance. A funding print is not a withdrawal, and a running total is not cash you can remove before maturity.
Slippage is the difference between the intended price of a hedge and the price at which the order actually fills.
In a two-leg trade, slippage on one side leaves unhedged delta and eats a spread measured in basis points. Thin books, latency between venues, and crowded entries all increase slippage. It is a core execution risk of funding arbitrage, not a rounding error.
Spot-futures arbitrage buys a crypto asset in the spot market and sells the futures or perpetual, or the reverse, to capture the price gap between the two.
The book is built to be delta-neutral, so the return is the basis minus fees, slippage, and any funding paid while the position is open. It is the same construction as cash-and-carry when the short leg is a dated future, and the same construction as funding-rate arbitrage when the short leg is a perpetual.
T
A target return range is the band of annualised outcomes a plan is modelled to produce over its lock period.
The band is built from historical funding and the plan's limits, including its return ceiling and floor. It is not a floor the market must respect and not a cap that prevents a loss outside the model. Capital is at risk. A period can finish outside the range when funding, slippage, or a hedge break does not resemble the history the range was drawn from.
U
A unified margin account lets spot balances and derivative positions on the same venue share one collateral pool.
The spot leg of a hedge can support the short perpetual without a separate transfer into a futures wallet. That removes an operational step. It does not remove liquidation risk: if the shared pool is drawn down, both the collateral and the hedge sit in the same account the venue can close.
Choose a mandate that matches your lock period and risk tolerance, fund it in USDT, USDC, BTC or ETH, and the strategy runs from there.
Choose a mandate that matches your lock period and risk tolerance, fund it in USDT, USDC, BTC or ETH, and the strategy runs from there.
