Complete Guide to Cryptocurrency Arbitrage Trading: Funding Rate and Price Difference Arbitrage Strategies

Cryptocurrency arbitrage is an investment strategy that profits from price differences of assets across different markets. It is a key technique used by many professional traders in the crypto space, with the most common forms being funding rate arbitrage, spot-contract arbitrage, and futures arbitrage. This guide will help you understand how to flexibly apply arbitrage strategies in crypto trading.

Core Principles of Arbitrage Trading

Arbitrage allows traders to quickly seize market opportunities without relying on API automation. The key is to monitor the price movements and liquidity of the same asset across different markets simultaneously, then place opposite orders to optimize execution and achieve higher trading precision.

Crypto arbitrage mainly has two application directions: one based on funding rates and the other based on price differences. Each strategy has its own characteristics and is suitable for different market conditions and trading objectives.

Funding Rate Arbitrage: Profiting from Financing Costs

Funding rate arbitrage involves placing simultaneous orders in the spot market and perpetual contract market with equal amounts in opposite directions. The principle is to offset potential losses in one market with gains in another, while earning profits from funding fees.

Difference Between Forward and Reverse Arbitrage

When the funding rate is positive, traders holding short positions receive fees from traders holding long positions. In this case, the forward arbitrage operation is: buy in the spot market and open an equal short position in the perpetual contract market. This way, you can profit from both asset price increases and funding fees.

Conversely, when the funding rate is negative, you can open a short position in the spot market and an equal long position in the perpetual contract market to earn negative funding fees. This is called reverse arbitrage.

Let’s understand this with a concrete example: suppose a perpetual BTC contract has a funding rate of +0.01%. This means long position holders pay fees to short position holders. A trader can simultaneously buy 1 BTC in the spot market and open a 1 BTC short in the perpetual contract market. This hedging strategy eliminates price fluctuation risk (profits in one market offset losses in the other) and allows steady earnings from funding fees.

Price Difference Arbitrage: Profiting from Convergence

Price difference arbitrage involves buying and selling the same asset simultaneously across different markets to capture price discrepancies. The core logic is that futures prices will eventually converge with spot prices.

For example: if BTC’s spot price is lower than its perpetual or futures contract price, you can buy BTC in the spot market and sell corresponding contracts in the derivatives market. When the contract approaches expiry, the price gap narrows or disappears, allowing you to profit from this convergence. This strategy is especially effective near contract expiry when the price difference is most pronounced.

Multi-Level Support System for Arbitrage Trading

Modern crypto trading platforms provide comprehensive infrastructure for arbitrage. Through unified account mechanisms, traders can use over 80 different crypto assets as collateral for arbitrage trading.

This means if your account has 30,000 USDT in margin and the latest BTC price is around 30,000 USDT, you have enough capital to buy 1 BTC in the spot market and open a 1 BTC short in the perpetual contract market for forward arbitrage.

More flexibly, if you already hold an asset (e.g., BTC) and the spread between spot and futures widens, you can use that asset as collateral and open an equivalent short position in the futures market. In this case, BTC price fluctuations won’t increase your liquidation risk. When the futures contract expires and the spread narrows, you can realize the spread profit.

Core Functions of Arbitrage Tools

Opportunity Detection and Ranking

Modern arbitrage tools can automatically identify the best arbitrage opportunities. Trading platforms typically rank available trading pairs by funding rate from high to low, allowing you to quickly see which assets have the highest funding rates and identify optimal entry points.

Similarly, features that rank by price difference display the disparities between spot and derivatives markets for different trading pairs. Traders can intuitively see the pairs with the largest spreads and formulate strategies accordingly.

Bidirectional Synchronization and Order Placement

On a single screen, monitor the price movements and liquidity of two trading pairs simultaneously, then place opposite orders with one click—greatly simplifying arbitrage execution.

Intelligent Auto-Rebalancing Mechanism

A key feature, auto-rebalancing checks the execution status of both directions every 2 seconds. If you have executed 0.5 BTC in one direction but only 0.4 BTC in the other, the system will automatically place a market order for 0.1 BTC in the opposite direction to maintain balanced positions.

This mechanism is active for 24 hours. After that, any unfilled orders are automatically canceled. This design ensures position symmetry and prevents long-term imbalance.

Potential Risks and Necessary Precautions

Main Risk Factors

Although arbitrage appears low-risk, several risks exist. First, arbitrage does not guarantee profit; there is still a risk of liquidation. Second, the auto-rebalancing executes at market prices, which may cause actual fill prices to differ from expected prices.

Finally, the arbitrage tool itself does not actively manage or close positions—traders must actively monitor and manage their positions, which is an important responsibility.

Risk of Partial Fill and Liquidation

If orders in both directions are only partially filled, the imbalance in risk exposure can lead to liquidation risk. This is why enabling auto-rebalancing is crucial—it periodically checks the filled amounts in both directions and automatically places market orders to restore balance, significantly reducing risk.

How to Execute Arbitrage Trades

Preparation and Setup

First, open the trading page, select the “Tools” menu, then find the “Arbitrage” option. Next, choose a suitable trading pair based on funding rate or price difference ranking.

Key Decisions Before Placing Orders

Decide on your position direction—long or short. It’s important that the quantities in both directions are always equal but in opposite directions. Once you select a direction, the system will automatically suggest the opposite.

Then, choose between market or limit orders. When entering prices, you can view funding rates or spreads next to the trading pair to assess potential arbitrage gains.

Quantity Input and Risk Management

Enter the quantity for one direction; the system will automatically fill in the other. Enable the auto-rebalancing feature—though optional, it is highly recommended as it reduces the risk of failed execution in one direction.

Order Confirmation and Monitoring

Click the “Bidirectional Confirm” button to send your orders to the market. You can then monitor your arbitrage order status in real-time under “Tools” → “Active”.

After execution, check “Tools” → “History” for order records. For position management, view your derivatives positions in the “Positions” tab of the perpetual/futures trading page; check your spot assets in the “Assets” section; and review funding fee income in the trading logs of your unified account.

Common Questions and Answers

When is the best time to initiate arbitrage?

Arbitrage is especially useful when:

• There is a clear price discrepancy between two trading pairs, allowing you to lock in short-term profits while reducing slippage risk caused by market volatility.

• Handling large orders or during volatile markets where quick responses help control costs and buffer against market swings.

• Implementing multi-layered strategies or closing multiple positions simultaneously, ensuring precise execution across markets and avoiding missed opportunities or incomplete position closures.

How are key data calculated?

Price difference: Sell price - buy price

Price difference percentage: (Sell price - Buy price) / Sell price

Funding rate annualized rate (APR): (Sum of 3-day accumulated funding rates) / 3 × 365 / 2

3-day accumulated funding rate: Total of all funding rates over the past 3 days

Price difference APR: Current price difference / maximum cycle (days until expiry) × 365 / 2

Maximum cycle: Days until contract expiry

Can arbitrage be used to close existing positions?

Yes. The arbitrage tool supports both opening and closing positions, providing additional flexibility for managing current holdings.

Can sub-accounts use arbitrage?

Yes, as long as sub-accounts are enabled under the unified account mode, they can utilize arbitrage features.

Is arbitrage available in demo trading?

Currently, arbitrage functions are not available in demo mode.

How significant is the risk of liquidation?

In cases of partial fills, risk exposure may be uneven, leading to potential liquidation risk. Enabling auto-rebalancing helps by periodically checking fill amounts and automatically placing market orders to maintain balance, effectively reducing risk.

Which margin mode does arbitrage use?

Arbitrage operates under the cross-margin mode within a unified account.

Why might arbitrage orders not execute?

If your available margin is insufficient to simultaneously execute both directions, orders will not fill. Try reducing order sizes.

What happens if I disable auto-rebalancing?

Disabling auto-rebalancing means the system will no longer automatically adjust the quantities in both directions. It will assume you have explicitly confirmed that orders should execute in opposite directions. Orders will remain active until fully filled.

Why does auto-rebalancing stop when orders are partially filled?

If, within 24 hours of enabling auto-rebalancing, orders are not fully filled, the system will automatically stop rebalancing, and remaining unfilled orders will be canceled.

How to view positions and assets after full execution?

Once both orders are fully filled, the arbitrage process is complete. To view spot orders and derivative positions, check the respective order history pages. For perpetual/futures positions, click “Positions” in the derivatives trading interface. To see your spot assets, go to the assets list in spot trading; for funding income, review your trading logs in the unified account.

Why do orders appear unbalanced when auto-rebalancing is enabled?

This is usually caused by insufficient margin or low market liquidity, preventing orders from executing as intended.

Will canceling spot or derivatives orders affect the arbitrage?

It depends on whether auto-rebalancing is enabled:

• Enabled: Canceling one order will automatically cancel the opposite order, stopping the entire arbitrage strategy.

• Disabled: Orders in each direction operate independently. Canceling one does not affect the other, and the remaining order can continue to execute.