Common Mistakes Traders Make With Funding Arbitrage

Funding arbitrage sounds simple: receive funding while hedging price risk. In practice, many traders underestimate execution costs, exchange risk, and how quickly funding can change.

Mistake 1: ignoring fees

Entry fees, exit fees, spreads, and slippage can erase expected funding income. A spread that looks attractive on screen may not survive real execution.

Mistake 2: assuming funding will persist

Funding can compress or flip before a strategy earns enough to justify the risk. This is especially common after many traders discover the same opportunity.

Mistake 3: imperfect hedges

Spot and perpetual positions may not offset perfectly. Index differences, margin requirements, and liquidation rules can create unexpected exposure.

Mistake 4: exchange concentration

Keeping large balances on a single venue introduces operational and counterparty risk. Funding income should be weighed against where capital is held.