Note: Anything expressed below is not considered financial advice – they are only suggestions for users to learn more about trading strategies. Users are always encouraged to do as much research as possible before executing any trades. The content below is not intended to express any guaranteed return, and BitMEX does not take responsibility should your trades not perform as expected.
Making profit with crypto, especially derivatives, isn’t always straightforward. So we kickstarted “BitMEX Alpha” – a series to share our trading secrets on potentially profitable opportunities on BitMEX.
This time around, we share a basis trading opportunity on our platform which involves buying spot and shorting perpetual futures contracts – more specifically, MATIC (Polygon) and LINK (Chainlink).
How does it work? The contracts we discuss below have high funding rates (where longs pay shorts every eight hours), meaning that traders who short these contracts should receive a relatively larger sum of funding payments.
Let’s dive in.
What’s On the Table?
Here’s a breakdown of MATIC and LINK’s funding rates on BitMEX.
|
Token |
Strategy |
Latest funding rate (at the time of writing) |
APR (based on the latest funding rate) |
|
MATIC |
Long MATIC_USDT (Spot)
|
0.0959% |
105.0% |
|
LINK |
Long LINK_USDT (Spot) Short LINKUSDT (Perpetual) |
0.0780% |
The very right column – APR (based on latest funding rate) – shows the annualised return you would make through making basis trades for each token.
How to Execute the Opportunity?
- Buy (long) the token on Spot or Convert.
- Sell (short) the same amount of tokens as Perpetual contracts.
- Important: Keep track of the tokens’ funding rates here.
- Unwind the trade(s) when you believe funding rates will turn negative for an extended period of time.
For a step-by-step guide on basis trading Perpetual contracts vs. Spot, you can refer to “2. Swap Trading vs. Spot Trading” in this article.
What’s the Profit Potential?
It’s not possible to determine the exact amount of profit for these trades (as they depend on funding rates which change every 8 hours), but the funding rates of the contracts mentioned are much higher than what we usually see!
Which means you could potentially make more profit via funding payments.
What Do I Need to Consider?
- Exit and entry costs on both trades e.g. trading fees and slippage.
- Execution risk when trading both Spot and Perpetual contracts at the same time, especially during volatile market periods.
- USDT (Tether) is needed to buy Spot. Extra USDT is needed as margin for the Perpetual contract.
- Liquidation risk considering you can trade up to 20x for the MATICUSDT perpetual contract and up to 33x for the LINKUSDT perpetual contract. Your position could get liquidated if market price climbs higher than your liquidation price, which will expose you to an unhedged spot position. If choosing to use high leverage for your trade, you should closely monitor market conditions and top up your wallet to meet the margin requirements. Alternatively, you can choose to trade with 1x leverage to avoid liquidation risks.
Like what you’ve read? We’ve got more trading guides covering derivatives trading, technical analysis, bot trading, and more. Check them out here.
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