Risk-free currency circle perpetual contract capital rate arbitrage tutorial starting from 10% annualized, suitable for idle Usdt financial management

For newbies in the currency circle, we will introduce a risk-free currency perpetual contract funding rate arbitrage tutorial starting from 10% annualized.

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The following is the complete text
1. The effect of capital rate arbitrage:
1. No risk, the rise or fall of the currency itself has nothing to do with you;
2. Earn pure interest, three times a day. Generally, the annualized rate starts at 8%, and in the bull market, the annualized rate starts at 20%.

2. Suitable for the crowd:
People who want to do stable financial management with cash. For example, the money outside the market wants to do some capital-guaranteed financial management, or the money on the market feels that the current currency price is too high and is afraid of taking over, so the idle USDT can be used for financial management.

3. The principle of capital rate arbitrage:
The currency circle perpetual contract has a funding rate (see the figure below), and the long contract and the short contract interact with each other three times a day. When the funding rate is positive, the long positions are handed over to the short positions, and when the funding rate is negative, the short positions are handed over to the long positions.

4. Binance Perpetual Contract Funding Rate
Generally, it is 0.01% per time, and the long position is handed over to the short position, which is almost 10% annually. It will only be higher when the market is booming. Generally, it can reach more than 0.1% at a time during the booming bull market period. Negative values ​​may appear when the market is particularly bleak and the price drops sharply, but it generally rarely occurs.

Why is there this funding rate? This is because the perpetual contract has no delivery date. In order to keep the contract market price as close to the spot as possible, the funding rate is set based on the difference between the contract transaction price and the spot price to guide the contract price deviation. For example, if the contract transaction price is higher than the spot price, then the funding rate is set to be positive, and longs need to pay the funding rate to shorts. In order to avoid costs, bulls will reduce their long positions and drive down the price. On the other hand, if the contract transaction price is lower than the spot price, then the funding rate will be negative, and the short seller will need to pay the funding rate to the long position. In order to avoid costs, the short position will reduce the short position and push the price up.

Reference: a. Introduction to Binance funding rates; b. Binance funding rate history and real-time funding rates

5. How to operate capital rate arbitrage?
1. First, you need to register a Binance account or register an Oyi account (with preferential rates), and have deposited RMB in Binance to buy USDT;

2. When the funding rate is positive, USDT uses spot trading to purchase the currency to be arbitraged, such as Bitcoin, and then transfers it to the U-based perpetual contract, turns on the joint margin, and shorts the entire position to buy the number of Bitcoins ( Go short as much as there are spot Bitcoins, which is equivalent to 1x short hedging). Since the short position amount is equal to the spot margin amount, the position will never be liquidated and interest will be charged three times a day.

3. When you no longer want to arbitrage, close the contract, transfer the margin to spot, and sell it immediately for USDT.

During this process, if the price of the currency increases, the short contract will lose money and the number of coins will decrease, but it does not matter, the price of the currency itself has increased, and the net value of the position = number of coins * currency price, the net value will remain unchanged. If the currency falls, the short contract will make a profit and the currency will increase, but the currency price itself will fall, so the net value will remain unchanged. The rise and fall of currency prices has nothing to do with you, you only earn interest.

6. Operation of perpetual contract funding rate arbitrage
Calculation of costs and benefits:
1. Cost:
a. Handling fees: spot buying (0.1%) when arbitrage starts, contract opening (0.05%), contract closing (0.05%) when arbitrage ends, and spot selling (0.1%). It takes at least 7 days to deduct the handling fee.

b. The slippage of the price difference between spot and contract: For example, if the spot transaction is 65,000 and the contract transaction is 64,900, it is equivalent to a loss of 100 dollars. The best thing is to tend to 0.

2. Income = contract position value (net arbitrage asset value) * funding rate (generally 0.01%) * 3 * number of days - handling fee - slippage loss. If the time is long enough, the annualized rate of return = funding rate * 3*number of days, usually 10% annualized

7. Risks of capital rate arbitrage:
1. Risk of shorting: Because you have no position, it is purely financial management, and you will regret it if other currencies rise;

2. Failure to strictly hedge risks: There is no 1:1 hedging, or the spot is not sold in a timely manner after closing the contract.

3. Exchange security risks and risks of the USDT currency itself: these two can be ignored

8. More detailed gameplay of funding rates:
1. Currency: It is generally recommended to do Bitcoin. The market depth of other currencies is not good, and the slippage is actually quite high;

2. Direction: It is generally recommended to pay the rate for short selling and long selling. Long selling and short selling are less likely to occur, and you are required to have spot goods to sell;

3. Hedging method: To go short is to buy spot for hedging, to go long is to borrow spot and sell for hedging (this requires opening a unified account so that the margin account and contract account share the margin, which is generally not recommended)

4. It is generally recommended to use U standard, which has low handling fees and good market depth, but is slightly worse than currency standard.