Funding-rate arbitrage as market-neutral alpha

A funding-rate arbitrage position is not a directional bet. It is a structured pair — a long perpetual-futures leg against an offsetting short spot leg, or the inverse, sized so the position's delta to the underlying price is approximately zero. What the position captures is the funding rate that the perpetual contract pays between the two sides of its book, decoupled from where the price goes.

At framework level, the risk decomposition is straightforward. Price risk is neutralised by construction. The residual exposures are (i) basis risk, which opens when the spot and perp prices diverge during delivery or liquidation stress; (ii) venue risk, which opens if one leg's exchange suspends withdrawals or enters an abnormal margin regime; and (iii) margin-call risk, which opens if the position is sized against insufficient collateral to sustain a funding-rate sign flip.

The position's return profile is therefore a financing spread, not a directional speculation. It reads closer to a repo trade than to a long-only inventory position, and the firm treats it that way in risk.

Two implications follow. First, the strategy requires counterparty discipline on both legs of the position: a funding-rate opportunity on an operationally-weak venue is not an opportunity. Second, scale is governed by collateral efficiency and venue credit limits, not by conviction.