What Is the Binance Funding Rate Arbitrage Bot and Frequently Asked Questions

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1. What is the Binance Funding Rate Arbitrage Bot?

The Binance Funding Rate Arbitrage Bot is an innovative tool designed for traders to engage in arbitrage strategies between perpetual futures contracts and their spot equivalents. 

It leverages the funding rate mechanism by hedging their futures positions with spot positions to collect funding fees. 

2. What are funding fees in perpetual futures trading? 

Funding fees are periodic payments between long and short position holders in perpetual futures markets. They are designed to keep futures prices aligned with spot prices of the underlying asset. 

Funding Fees = Position Size * Funding Rate  

The funding rate determines the funding fee, and fluctuates over time for each symbol independently. You can have an overview of the funding rates for all symbols on Binance Futures here. 

For more information about funding fees, please refer to What Are Funding Fees in Binance Futures?

3. How does Funding Rate Arbitrage Bot work?

Arbitrage involves taking a long position in one market (e.g., spot) and a short position in another (e.g., futures) to collect the funding fee.The funding rate arbitrage strategy is delta neutral, meaning it aims to hedge out price movement risks by holding opposite positions in the futures and spot markets. 

This strategy ensures that regardless of price direction, the profit from a long position offsets the loss from a short position (or vice versa), while collecting the funding fee.The primary goal is to profit from funding rate payments without being exposed to significant price volatility risks.

• Positive carry

When the funding rate is positive, a trader can generate stable funding fee income by purchasing the asset on the spot market and short selling an equivalent position in perpetual futures contracts. This approach is often referred to as positive arbitrage.

• Reverse carry

When the funding rate is negative, traders can still earn stable funding fee income by shorting on the spot market (typically by selling the asset at the current price) and going long on an equivalent leveraged position in perpetual futures contracts. This strategy essentially bets on a future price increase while benefitting from the funding fee rates.

The Binance Funding Rate Arbitrage Bot streamlines the execution of these strategies by automating the process for the user. After selecting a trading pair, such as BTCUSDT, the bot analyzes the current funding rate direction.

• If the 3-day cumulative funding rate is positive (long pays short):

When the funding rate is positive, indicating long positions pay short positions, the bot may short the perpetual futures contract (benefiting from the funding rate) and buy an equivalent amount of the asset on the spot market.This strategy is referred to as [Positive Carry] on the front end.

• If the 3-day cumulative funding rate is negative (short pays long):

When the funding rate is negative, indicating short positions pay long positions, the bot will take a long position in the futures market and sell an equivalent amount in the spot market. To maintain the original asset balance in the spot market, the bot buys back the asset on the spot market after collecting the funding fees. This strategy is referred to as [Reverse Carry] on the front end. 

This automated approach ensures that traders can consistently take advantage of funding rate fluctuations, potentially securing profits from these periodic payments. 

4. How to use the Binance Funding Rate Arbitrage Bot?

Step 1. Navigate to Arbitrage Bots

From the Binance official website, select [Trade] - [Trading Bots] - [Arbitrage Bots].

Alternatively, go directly to the [Arbitrage Bots] section on the Trading Bots interface.

Step 2. Pick a symbol for your arbitrage strategy

Start by selecting a symbol for your arbitrage strategy.

Understand the rates: 

• 3D Funding %: The sum of the recent funding rate settled over the past 3 days.
• APR: The annual rate generated by extrapolating the funding rate to a year.
  APR =|3 Day Cum. Rate%| / 3 * 365

Strategy options:

[Positive Carry]: Use this strategy when the 3-day cumulative funding rate is positive. This involves shorting futures to accumulate funding fees and buying the equivalent amount on the spot market to hedge against price changes. 

[Reverse Carry]: Use this strategy when the 3-day cumulative funding rate is negative. This involves going long on futures to collect funding fees and shorting an equivalent amount on the spot market. 

Step 3. Enter investment amount

Once you’ve chosen the symbol, go to the order interface to input your parameters.

You can visualize your amount available on spot and input your investment amount. Ensure sufficient funds by transferring or depositing into your Spot Account.

Please note: 

• The investment asset for USDⓈ Futures and COIN-M Futures positive carry arbitrage is USDT.
• The investment asset for USDC Futures positive carry arbitrage is USDC.
• The investment asset for reverse carry arbitrage is base asset (e.g., BTC, ETH, BNB).

Buffer mechanism:

10% of the initial investment is reserved as a buffer to account for margin checks and market movements. 

For example:

• If you invest 1,000 USDT into a long USDⓈ-M strategy, 900 USDT will be used to buy the base asset, with a corresponding 900 USDT notional value allocated to the short USDⓈ-M position.
• The buffer helps prevent failing the margin check when the market moves sharply during strategy creation.

Optional: Enter Entry Spread Control

As an option, you can choose to set Entry Spread control when you create an Arbitrage Bot or increase investment to an existing Arbitrage Bot. The Entry Spread will be set to -0.1% by default.

• Positive carry: For positive carry portfolios (buy spot, sell futures),  the Entry Spread is calculated as (Futures Price - Spot Price)/Futures Price. The larger the spread, the higher the potential profit. The market is monitored in real time and a position is only opened when the spread reaches or exceeds your target.
  • Example: If you set a 2% Entry Spread and buy spot at 100 USDT while opening a short futures position at 102 USDT, you earn a +2% Entry Spread profit via a buy-low-sell-high strategy.
• Reverse carry: For reverse carry portfolios (buy futures, sell spot), the Entry Spread is calculated as (Spot Price - Futures Price) / Futures Price. The larger the spread, the higher the potential profit. The market is monitored in real time and a position is only opened when the spread reaches or exceeds your target.
  • Example: If you set a 2% Entry Spread, and open a long futures position at 100 USDT while selling spot at 102 USDT, you earn a +2% Entry Spread profit via a buy-low-sell-high strategy.

Please note: Before initiating your Arbitrage Bot, please review the [Recommended min holding period]. This is the estimated breakeven period based on the past 30-day average funding rate. Tap on [>] to view the Breakeven Estimator calculation details based on 3/7/30 day Funding Rate Assumption.

Step 4. Create an arbitrage portfolio

Set your parameters and initiate the strategy. It may take some time for the bot to align the sizes of both legs of the strategy. 

When the Arbitrage Bot has a [Creating] or [Pending Increase] status caused by the Entry Spread, you may use [Skip Spread] to clear the current Entry Spread and execute the operation immediately. You may also edit the Entry Spread on detail page.

5. Monitoring and managing your portfolios

Monitoring your strategies:

Track your strategy from the [Running] tab for details such as:

• Position size: Notional values of the spot and futures legs.
• Total funding: Accumulated total of all funding fees collected during the strategy’s runtime.
• Market value: Total balance of all assets allocated to the strategy (calculated using the last price) + unrealized PnL from futures positions.
• Funding fee alert: Indicates if the 3-day cumulative funding rate or the next funding rate has an opposite buy/sell direction from your running strategy. Consider ending the strategy manually when triggered.

Managing the Strategy

• To end your strategy, click [End] on the running strategy and choose to [Close all] or close partial positions to exit from the arbitrage strategy. Then click [Confirm]. By clicking [End] on the running list or detail page of the Arbitrage Bot, you can select the futures position size you wish to close in the closing Arbitrage Bot popup. The spot leg will automatically close an equivalent amount. Clicking [End] will terminate the bot.

• Enter Exit Spread control (optional)
  • The Exit Spread will be set to -0.1% by default when you are closing the Arbitrage Bot.
  • Positive carry: For positive carry portfolios (buy spot, sell future),  the exit spread is calculated as (Spot Price - Futures Price)/Futures Price. The larger the spread, the higher the potential profit. We monitor the market in real time and only close positions when the spread reaches or exceeds your target.
  • Example: If you set a 2% exit spread, and sell spot at 102 USDT while buying Futures at 100 USDT to close your position, you earn a +2% exit spread profit via a buy-low-sell-high strategy.
  • Reverse carry: For reverse carry portfolios (buy futures, sell spot),  the exit spread is calculated as (Futures Price-Spot Price)/Futures Price. The larger the spread, the higher the potential profit. We monitor the market in real time and only close positions when the spread reaches or exceeds your target.
  • Example: If you set a 2% exit spread, and sell futures at 102 USDT to close your position while buying back spot at 100 USDT, you earn a +2% exit spread profit via a buy-low-sell-high strategy.

• When the Arbitrage Bot is in pending decrease or canceling states because of the Exit Spread, you may use [Skip Spread] to clear the current exit spread and execute the operation immediately.
• You may also edit the Exit Spread on the detail page.

• If delays occur in closing the bot due to spread control, you can skip the spread control check by clicking [Speed Up] to close the bot immediately at market price.

• Filter options: Utilize filters to display strategies based on positive carry or reverse carry.

• History review: Access the [History] tab to review past strategies and their outcomes.

• Increase/Decrease the investment size: Choose the portfolio and investment amount, and click [Increase] to increase investment size.

• Withdraw arbitrage profit: 
  • On the details page of a running strategy, strategies that meet the minimum withdrawal criteria will display a [Withdraw Profit] button.
  • Click [Withdraw Profit] and enter the amount to withdraw profits without closing the bot.
  • A minimum profit of 0.002 USDT is required to withdraw without closing the bot. If the profit is less than 0.002 USDT, you must close the bot to withdraw the profit.

Monitoring your trading bots assets

1. Access your Arbitrage Bots assets and strategies via the [Assets] section: 

2. Navigate to the [Assets] - [Trading Bots] from the Binance homepage.

If not already activated, you must first enable your Trading Bots account. Click [OK] to proceed.

3. To view your running arbitrage strategies, navigate to [Trading Bots] - [Arbitrage Bot] - [Running].

4. To view assets allocated to running arbitrage strategies, select [Arbitrage Bot] - [Assets].

5. To view further details of arbitrage records, click [View Bot].