First, let me give you a quick intro to future products and market-neutral positions. In "future" financial products, instead of buying or selling the actual asset like in the spot market, you're essentially betting on whether the price of an asset will rise or fall. These products include both expiring contracts and perpetual contracts, though most people prefer the latter. Unlike spot trading, perpetual contracts come with additional costs like trading fees and funding fees.
With futures trading, you can use leverage, which means borrowing assets to increase the size of your position. The funding fees depend on the balance of trades on the platform . If more traders are betting on the price going up (long positions) than down (short positions), long traders pay funding fees to the short traders, and vice versa. In a bull market, like the one we’re currently seeing, many traders take on highly leveraged long positions, which often results in long positions paying substantial funding fees to the short side. Here’s the strategy: you can collect funding fees by taking a short position in futures while simultaneously buying the same amount of the asset in the spot market. This way, you're protected from any price movements in the asset itself. This is what we call a market-neutral position.
What you lose on one side, you recover on the other whether it's in futures or spot. It’s all about maintaining balance!
Let's dive in ! You’ll need to make three important decisions: -1. Which platforms you’ll trade on -2.The underlying asset for your market-neutral strategy -3.The level of leverage for maximizing capital efficiency
If you’re looking to build large positions, it’s essential to choose platforms with high liquidity. This means opting for major centralized exchanges (CEXs) like Binance or Coinbase and focusing on significant assets like BTC or ETH. These platforms offer the largest order books, helping you avoid losses from slippage.
For many traders, the goal is to establish medium or small positions while seeking the best yield opportunities.
To compare and identify the top platforms and coins for your short positions, there’s only one website you need to check out: https://www.coinglass.com/FundingRate
Now, let’s say we want to establish a position totaling $10,000. Here’s our approach:
-1. We’ll invest $5,000 in the spot market for an asset and simultaneously allocate $5,000 to short the same asset in the futures market (aiming for roughly the same entry price). -2.To enhance our yield, we’ll allocate $7,500 to the spot market and $2,500 to the futures market instead of splitting our capital evenly. -3.We’ll purchase $7,500 worth of our asset in the spot market and short $2,500 of the same asset in the futures market using 3x leverage. This means we’ll earn funding fees based on $7,500 instead of $5,000, all while maintaining a total position of $10,000. This strategy greatly enhances our yield!
Disclaimer: Using leverage will expose us to a liquidation price, so it's important to develop an exit strategy. Show Less
