How to perform funding rate arbitrage with Bybit contracts?

Funding rate arbitrage on Bybit involves capturing periodic payments by holding offsetting perpetual and spot positions, profiting from rate differentials while staying market-neutral.

Aug 09, 2025 at 12:49 am

Understanding Funding Rate Arbitrage in Bybit Perpetual Contracts

Funding rate arbitrage is a strategy used by traders to profit from the periodic funding payments exchanged between long and short positions in perpetual futures contracts on exchanges like Bybit. Unlike traditional futures, perpetual contracts do not have an expiration date, so funding rates are used to anchor the contract price to the underlying spot price. When the funding rate is positive, long position holders pay short position holders, and when it's negative, shorts pay longs. Traders can exploit this mechanism by simultaneously holding opposing positions across different platforms or by using a neutral market-neutral strategy on the same exchange.

This form of arbitrage does not rely on price movement but instead on the predictable transfer of funds every 8 hours (on Bybit). The key is to capture the funding payment while minimizing exposure to price fluctuations through hedging.

Setting Up a Dual-Position Strategy on Bybit

To perform funding rate arbitrage on Bybit, you must open two offsetting positions that balance delta risk. This typically involves holding a long perpetual contract on Bybit while hedging with a short position in the spot market (or vice versa). The goal is to remain neutral to price changes while collecting funding payments.

• Create a Bybit account and complete identity verification.
• Deposit USDT or BTC into your futures wallet.
• Navigate to the Contracts section and select a perpetual pair (e.g., BTCUSD).
• Open a long perpetual contract position with your desired leverage (e.g., 10x).
• Simultaneously, sell an equivalent amount of BTC in the spot market (on Bybit or another exchange).
• Ensure the notional value of the short spot position matches the long futures position to remain market-neutral.

For example, if you go long 1 BTC worth of perpetual contracts, you must short 1 BTC in spot. This eliminates directional risk. Every 8 hours, if the funding rate is positive, you receive payment from longs. Since you are synthetically short via spot but long in futures, you effectively collect the funding rate without price exposure.

Monitoring and Timing Funding Payments

Funding payments on Bybit occur every 8 hours at 00:00 UTC, 08:00 UTC, and 16:00 UTC. To maximize arbitrage efficiency, you must enter positions just before the funding timestamp when the rate is favorable.

• Check the current funding rate on Bybit’s contract page. It appears as a percentage (e.g., 0.01%).
• Use the funding rate calendar or API to anticipate high positive or negative rates.
• Enter the dual-position setup 15–30 minutes before the funding timestamp to ensure execution.
• After receiving the funding payment, you may choose to close or hold the position depending on the next cycle’s rate.

If the funding rate is positive and high, being long on Bybit and short in spot allows you to receive the payment. If the rate turns negative, reverse the strategy: go short on Bybit and long in spot to collect from the shorts. Timing is critical—entering too late may result in missing the payment cycle.

Managing Risk and Slippage

Although funding rate arbitrage appears risk-free, several hidden risks exist. Price slippage, liquidation risk, and funding rate volatility can erode profits.

• Leverage risk: High leverage on futures increases liquidation chances if price moves sharply. Use low leverage (3x–5x) to avoid margin calls.
• Spot-futures basis risk: If the spot price diverges significantly from the futures price, your hedge may become unbalanced. Monitor the basis spread continuously.
• Exchange risk: If using different exchanges for spot and futures, withdrawal delays or outages can prevent timely hedging.
• Funding rate reversal: Rates can flip signs between cycles. Always re-evaluate before re-entering.

To minimize slippage:

• Use limit orders for both spot and futures entries.
• Trade during high liquidity periods (UTC 00:00–02:00 often has high volume).
• Avoid entering during major news events or volatility spikes.

Using APIs for Automated Arbitrage Execution

Manual execution is error-prone due to the tight timing around funding events. Using Bybit’s API allows for automated, precise trades.

• Register an API key in your Bybit account under API Management.
• Enable "Trade" and "Order" permissions (avoid withdrawal access for security).
• Use a script (Python example below) to check funding rate and place orders:

import requests
import time
Fetch current funding rate
def get_funding_rate(symbol):
url = f"https://api.bybit.com/v2/public/tickers?symbol={symbol}"
response = requests.get(url).json()
return float(response['result'][0]['funding_rate'])
Place futures long
def place_futures_long(symbol, qty):
# Use authenticated POST request with API key
pass
Place spot short (via another exchange API)
def place_spot_short(exchange, symbol, qty):
pass
Main logic
symbol = "BTCUSD"
funding_rate = get_funding_rate(symbol)
if funding_rate > 0.0001: # Threshold for positive funding
place_futures_long(symbol, 1)
place_spot_short("Binance", "BTCUSDT", 1)
time.sleep(300)  # Hold until funding payment
Schedule this script to run 10 minutes before each funding timestamp. Ensure low-latency hosting (e.g., VPS near exchange servers) for faster execution.
Calculating Profit and Fees
Profit is calculated as:
Funding Payment = Nominal Value × Funding Rate
For example, a 1 BTC position with a 0.01% funding rate yields:
1 BTC × $60,000 × 0.0001 = $6
However, fees reduce net gain:
Futures taker fee: ~0.06% (if using market orders)
Spot trading fee: ~0.1% round-trip
Funding payment received only once every 8 hours
Net profit per cycle:

$6 (funding) - $60,000 × (0.0006 + 0.001) = $6 - $96 = -$90 (loss)

This shows that small positions are unprofitable. Arbitrage only works at scale or with fee discounts (Bybit VIP tiers). Additionally, use maker orders to reduce fees to ~0.01–0.02%.

Frequently Asked Questions

Can I perform funding rate arbitrage within a single Bybit account using long and short futures?

No. Holding both long and short futures positions on the same contract cancels out funding payments. You must hedge with a spot position on the same or another exchange to capture the rate.

What happens if the funding rate changes sign during my position?

If you’re long perpetuals and the rate turns negative, you will start paying funding instead of receiving it. Monitor rates closely and exit or reverse positions before the next funding timestamp.

Is funding rate arbitrage legal and allowed on Bybit?

Yes. This strategy uses publicly available mechanisms and does not violate Bybit’s terms. However, excessive API usage may trigger rate limiting.

Do I need to pay taxes on funding payments?

Tax treatment varies by jurisdiction. In many regions, funding payments are treated as ordinary income. Consult a tax professional for compliance in your country.