Why Risk Management Is Critical
Funding arbitrage seems low-risk because positions are market-neutral. But liquidation, exchange failures, and correlation breakdowns can wipe out accounts. This guide covers every risk vector and how to protect against it.
Position Sizing
Never risk more than 5% of your total capital in a single arbitrage position. The formula:
Position Size = (Total Capital × 0.05) / Number of Exchanges
Example: ,000 capital across 4 exchanges = per exchange, per trade.
Liquidation Protection
- Set liquidation alerts at 50% of your margin level
- Never use more than 3x leverage on any single position
- Maintain 30% of margin as free collateral at all times
- Close positions 1 hour before major news events
Exchange Risk Diversification
Never concentrate more than 40% of your capital on a single exchange. Even tier-1 exchanges fail occasionally. Spread across Binance, Bybit, OKX, and Kraken.
Drawdown Limits
- Daily limit: Stop trading if down 2% in a single day
- Weekly limit: Stop if down 5% in a week
- Monthly limit: Re-evaluate strategy if down 10% in a month