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 in 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’re going to talk funding rates. If you’ve been feeling FOMO with the recent crypto markets – but don’t want to risk placing directional trades at these prices – we’ve got just the trades for you to try out.
With the recent market rally, funding rates have reached all-time highs – which means more goldmines of basis trading opportunities. The discussed trades will involve buying spot and shorting perpetual futures contracts.
How does it work? The contracts listed 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.
To cater to your preferred contract types, we’ve broken down some basis trades on Quanto and Linear perpetual contracts on BitMEX.
Let’s dive in.
What’s On the Table?
Quanto Contracts
|
Token |
Strategy |
Latest funding rate (at the time of writing) |
APR (based on latest funding rate) |
|
BMEX |
Long BMEX_USDT (Spot) Short BMEXUSD (Perpetual) |
0.7205% |
789.0% |
|
NEAR |
Long NEAR (Convert) Short NEARUSD (Perpetual) |
0.5808% |
636.0% |
|
LINK |
Long LINK_USDT (Spot) Short LINKUSD (Perpetual) |
0.4187% |
458.5% |
|
ADA |
Long ADA (Convert) Short ADAUSD (Perpetual) |
0.4013% |
439.4% |
|
LTC |
Long LTC (Convert) Short LTCUSD (Perpetual) |
0.3550% |
388.7% |
|
AVAX |
Long AVAX (Convert) Short AVAXUSD (Perpetual) |
0.2821% |
309.0% |
|
DOGE |
Long DOGE (Convert) Short DOGEUSD (Perpetual) |
0.2752% |
301.3% |
|
FTM |
Long FTM (Convert) Short FTMUSD (Perpetual) |
0.2587% |
283.3% |
|
BCH |
Long BCH (Convert) Short BCHUSD (Perpetual) |
0.2302% |
252.1% |
|
SOL |
Long SOL_USDT (Spot) Short SOLUSDT (Perpetual) |
0.2214% |
242.4% |
|
SHIB |
Long SHIB (Convert) Short SHIBUSD (Perpetual) |
0.2186% |
239.4% |
|
ETH |
Long ETH_USDT (Spot) Short ETHUSDT (Perpetual) |
0.1791% |
196.1% |
|
XBT |
Long XBT_USDT (Spot) Short XBTUSDT (Perpetual) |
0.0555% |
60.8% |
Linear Contracts
|
Token |
Strategy |
Latest funding rate (at the time of writing) |
APR (based on latest funding rate) |
|
MATIC |
Long MATIC_USDT (Spot)
|
0.2307% |
252.6% |
|
LINK |
Long LINK_USDT (Spot) Short LINKUSDT (Perpetual) |
0.1990% |
217.9% |
|
DOGE |
Long DOGE (Convert)
|
0.1724% |
188.8% |
|
ADA |
Long ADA (Convert) Short ADAUSDT (Perpetual) |
0.1716% |
187.9% |
|
LTC |
Long LTC (Convert)
|
0.0925% |
101.3% |
|
XBT |
Long XBT_USDT (Spot) Short XBTUSDT (Perpetual) |
0.0829% |
90.8% |
|
ETH |
Long ETH_USDT (Spot) Short ETHUSDT (Perpetual) |
0.0803% |
87.9% |
|
BMEX |
Long BMEX_USDT (Spot) Short BMEXUSDT (Perpetual) |
0.0750% |
11.0% |
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 are dependent on funding rates which change every 8 hours), but the funding rates of the contracts mentioned are much higher than what we usually see!
For those who want to play around with our Quanto contracts, keep in mind that these contracts are margined and settled in XBT (Bitcoin). This means you’ll potentially make extra profit (or losses) due to the price movements of XBT. You may also choose to further hedge your Bitcoin exposure by shorting XBTUSD or XBTUSDT, which is also a profitable basis trade.
For BMEX Token holders – remember you can earn up to 12% APR when staking your BMEX tokens with us (on top of trading fee discounts). So while these basis trading opportunities are here, make sure you stake BMEX with us for even more rewards. However, be mindful of the minimum staking period which is two weeks.
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.
- Liquidation risk considering you can trade up to 100x for perpetual contracts on BitMEX. Your position could get liquidated if the 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.
For Quanto Contracts
- USDT (Tether) is needed to buy Spot. Extra XBT (Bitcoin) is needed as margin for the Perpetual contract.
- Quanto contracts are margined and settled in XBT (Bitcoin), so keep in mind that you will still be exposed to XBT/USD price risk when trading Quanto contracts.
For Linear Contracts
- USDT (Tether) is needed to buy Spot. Extra USDT is needed as margin for the Perpetual contract.
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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