FundingGapRisks of funding rate arbitrage
A long/short funding trade removes most of your exposure to price, but not all of your risk. These are the ways it loses money, roughly in order of how often they happen.
1. The funding spread closes or reverses
Funding rates are recalculated every settlement. A large spread often means one side of the market is crowded, and crowds move. When the spread shrinks, your income drops; when it flips, you start paying. The most extreme spreads tend to be the shortest-lived.
Manage it: check the settled history and the stability badge before opening, prefer pairs that have been positive for days, and decide in advance at what spread you will close.
2. One leg gets liquidated
The two legs sit on different exchanges with separate margin. If the price rises 40%, your short loses 40% of its notional while your long gains the same amount on another exchange, and that gain cannot be used to support the short. At 3x leverage, a move of roughly 33% against one leg wipes out its margin. After a liquidation you are left with an unhedged position, plus liquidation fees.
Manage it: use low leverage (1x to 3x), keep spare funds on both exchanges, set alerts well before the liquidation price, and rebalance margin after big moves.
3. Price differences between exchanges (basis)
The same coin trades at slightly different prices on each exchange. You will rarely open both legs at the same price, or close them at the same price. If the gap widens against you while you hold, closing costs more than expected.
Manage it: check the entry basis in the detail view. A positive basis, where the short is more expensive, works in your favour if prices converge. Avoid closing in a hurry during volatile periods.
4. Different settlement intervals
If one exchange settles hourly and the other every 8 hours, income and payments do not arrive at the same time. A spread that looks positive on an hourly basis can still lose money if you close right before the 8-hour leg pays you, or right after it charges you.
Manage it: pairs with mismatched intervals are tagged in the table. Note the next settlement time on each exchange and plan your exit around it.
5. Execution and slippage
Between opening the first leg and the second, the price can move, and for a few seconds you are unhedged. Large orders on thin order books fill at worse prices than the best bid or ask.
Manage it: check order book depth for your size in the detail view, split large orders, and open the less liquid leg first.
6. Same ticker, different coin
Tickers are not unique. Two exchanges can list unrelated tokens under the same symbol, or the same token in different units (1000PEPE vs PEPE). A "hedge" across two different coins is not a hedge at all.
Manage it: FundingGap compares per-coin prices and excludes exchanges whose price differs by more than 3%. Still check the contract details on both exchanges before trading.
7. Exchange and counterparty risk
Your margin sits on two exchanges. Outages during volatility, sudden withdrawal freezes, contract delistings, auto-deleveraging (where a profitable position is closed to cover someone else's losses), or an exchange failing outright can all break the hedge or lock your funds.
Manage it: spread your capital, avoid keeping more on any one exchange than you can afford to lose, and prefer exchanges you already trust.
8. Moving funds and different margin assets
Rebalancing margin means withdrawing from one exchange and depositing on another, which takes time and costs withdrawal fees. Hyperliquid uses USDC as margin while the others use USDT, so you need to swap and bridge funds first. FundingGap's net estimate does not include these costs.
9. Fees are higher than you think
Base-tier taker fees on four orders cost about 0.2% of each leg's notional, before spread. On short holding periods this can exceed the funding you collect. See how we calculate net profit, and adjust fees in the calculator to your own tier.
Before you open a position
- Is the pair marked stable, and has the realised APR held up for several days?
- Does estimated net profit stay positive for your realistic holding period?
- Is order book depth enough for your size on both exchanges?
- How far is the liquidation price on each leg, and do you have spare margin?
- Do both exchanges list the same coin, with the same contract unit?
FundingGap is a calculator, not investment advice. It does not trade or connect to your accounts. Open the live scanner.