Funding Rate Arbitrage Returns: How to Calculate Net APR and Break-Even Juli 15, 2026 – Posted in: cryptoarbitrage software

Most funding rate arbitrage write-ups stop at the gross number: take the current funding rate, multiply by the number of intervals in a year, and present the result as the yield. That figure is a starting point, not a return. Between it and your realized profit sits a stack of costs and one uncomfortable fact: funding changes every interval, so the rate you entered on is rarely the rate you exit on.

This article is the numbers-first companion to our funding rate arbitrage guide and live scanner. If you have not read how the trade is constructed, start there. Here we focus on a single question that decides whether the strategy is worth running at all: what is the net return, and what funding rate do you actually need to break even?

Start with gross funding APR

Perpetual funding is quoted per interval, most commonly every 8 hours, which is three times per day. The gross annualized rate assumes the current rate persists unchanged:

# Gross funding APR
intervals_per_day = 24 / interval_hours      # 8h -> 3
gross_APR = funding_rate_per_interval * intervals_per_day * 365

# Example: 0.01% per 8h
# gross_APR = 0.0001 * 3 * 365 = 0.1095 = 10.95% per year

The persistence assumption is the first thing to distrust. Funding mean-reverts. A rate that is elevated today is elevated because positioning is crowded, and crowded positioning unwinds. Treat gross APR as a ranking signal across opportunities, never as a forecast of what you will collect.

The cost stack that turns gross into net

Every funding arbitrage position pays to open and pays to close. On a cash-and-carry setup (long spot, short perpetual of the same asset) you cross the book on two legs at entry and two legs at exit. The costs that matter:

# Round-trip cost as a percentage of notional
round_trip_cost = (fee_per_leg + slippage_per_leg) * 4      # 2 legs x open+close

# Net collected over a holding window of H intervals
gross_collected = funding_rate_per_interval * H
net_collected   = gross_collected - round_trip_cost

# Break-even: how many intervals just to cover entry+exit
break_even_intervals = round_trip_cost / funding_rate_per_interval

Worked example 1: single-venue cash-and-carry

Long spot BTC, short BTC perpetual on the same exchange. Funding is +0.01% per 8h, so as the short you receive it. Assume taker fills on both legs.

The trap is visible immediately. At 0.01% per 8h you must hold for roughly nine days just to cover the cost of getting in and out. Hold for a month (about 90 intervals) and your net is 0.90% minus 0.26%, or 0.64% for the month, which annualizes cleanly only if funding stays put. Churn the position weekly and the fees eat you alive. This is why funding arbitrage rewards patience and punishes overtrading, and why using maker orders (cutting fee-per-leg from 0.045% to roughly 0.015%) can more than halve your break-even.

Worked example 2: cross-exchange funding spread

Same underlying, two venues. Exchange A funds at +0.040% per 8h, Exchange B at +0.005%. Short the perpetual on A (receive 0.040%), long the perpetual on B (pay 0.005%). You are delta-neutral (short one perp, long another) and capture the spread.

The cross-exchange spread breaks even far faster because the per-interval edge is larger. The catch is that these spreads compress faster too, since any capital can arrive to close them, and you now carry two exchange accounts, two margin buckets, and the risk that a withdrawal freeze or outage on one venue leaves you half-hedged. Wider edge, more moving parts.

The break-even funding rate

Flip the question around. If you know your cost and how long you intend to hold, you can compute the minimum funding rate worth entering on:

# Minimum funding rate per interval to break even over H intervals
required_rate = round_trip_cost / H

# Cost 0.26%, planned hold 15 intervals (5 days):
# required_rate = 0.26 / 15 = 0.0173% per 8h
# Anything below that is a losing trade at your cost structure.

This single line is the discipline the whole strategy needs. Screen the scanner, then reject every row whose funding does not clear your required rate for a realistic holding window. High APR on a row you can only hold two days, at taker cost, is often a loss.

Net APR calculator

Enter your own numbers. The calculator shows gross APR, break-even intervals, and the net APR you would keep if funding held for a full year at your cost structure.

Sizing the short leg so a rally does not liquidate you

The most common way funding arbitrage goes wrong is not funding at all. It is liquidation of the short perpetual leg during a sharp rally, before the offsetting gain on the spot leg can be realized. Delta-neutral on paper does not mean safe in practice, because spot and perpetual usually sit in separate margin buckets with separate liquidation logic.

• Keep the short perpetual at low effective leverage. A 1:1 hedge financed at 2 to 3x leverage survives a 30 to 40% adverse move; the same hedge at 10x is liquidated by a routine wick.
• Prefer unified or portfolio margin where the spot leg collateralizes the short, so the two legs offset inside one account instead of racing each other.
• Automate margin top-ups or partial unwinds, and set an alert well before the liquidation price, not at it.
• Remember that funding you are collecting is small; one liquidation can erase months of it. The margin buffer is not a cost, it is the strategy.

Common ways the trade loses money

• Quoting gross, ignoring the stack. The 40% APR row is 40% before fees, slippage, and the near-certainty that funding falls.
• Taker in and out on thin funding. Long break-even, and you exit before you clear it.
• Under-margining the short leg. A wick liquidates you while your hedge is still intact elsewhere.
• Wrong interval assumption. Some assets fund every 4h or 1h; annualizing them as 8h overstates APR by 2x or more.
• Chasing the top row. The highest funding is usually a low-liquidity alt with fat slippage that flips within an interval.
• Ignoring transfer latency. On cross-exchange setups, the time to move collateral is time you are unhedged.

Frequently asked questions