funding-arb-strategy

name	funding-arb-strategy
description	Domain knowledge for funding rate arbitrage execution. Use when implementing strategy logic, tranche calculations, capital allocation, or position management. Contains the business rules that govern how trades are opened, managed, and closed.

Funding Rate Arbitrage Strategy Skill

Core Concept

Open opposite perpetual positions (long on one exchange, short on another) for the same asset to capture the net funding rate differential while remaining delta-neutral.

Position Sizing Formula

from decimal import Decimal

available_capital = min(hl_balance, bb_balance)
allocated_capital = available_capital * allocation_pct / Decimal("100")
position_size_usd = allocated_capital * leverage
position_size_coins = position_size_usd / current_price

Tranche Calculation

tranche_size = total_size / num_tranches

# Price offsets from mid (for buy/long side, subtract offset; for sell/short side, add offset)
for i in range(num_tranches):
    offset = mid_price * tranche_offset_bps * (i + 1) / Decimal("10000")
    if is_buy:
        tranche_price = mid_price - offset  # bid below mid
    else:
        tranche_price = mid_price + offset  # ask above mid

Execution Sequence

1. Validate: balances, leverage, no conflicting positions
2. Set leverage on both exchanges
3. For each tranche: a. Place limit order on Exchange A (leg 1) b. Place limit order on Exchange B (leg 2) — simultaneously via asyncio.gather c. Wait for fills (timeout: fill_timeout_sec) d. Handle mismatches (one fills, other doesn't)
4. After all tranches: place SL/TP on both exchanges
5. Start position monitor

Fill Mismatch Handling

Both fill     → proceed to next tranche
Neither fills → cancel both, re-price, retry (max 3 retries)
One fills     → wait grace_period_sec
  → If other fills: proceed
  → If not: cancel unfilled
    → If partial execution acceptable: keep matched portion, report
    → If not: close filled leg via MARKET ORDER (speed > slippage), report error

SL/TP Rules

• SL/TP placed AFTER position is fully opened (all tranches)
• Use average entry price across tranches for SL/TP calculation
• SL/TP are exchange-native trigger orders (survive app restart)
• If one leg's SL/TP triggers, the position monitor closes the other leg

Closing Sequence

1. Cancel existing SL/TP on both exchanges
2. Execute close in tranches (same logic as open, but reduce_only)
3. Verify both positions are fully closed
4. Log final PnL including funding collected

Funding Rate Comparison

When comparing rates, normalize to the same time interval:

# Hyperliquid: hourly rate
# Bybit: 8-hour rate
# Normalize both to hourly:
hl_hourly = hl_funding_rate  # already hourly
bb_hourly = bb_funding_rate / Decimal("8")  # convert 8h to 1h

net_hourly = hl_hourly - bb_hourly  # or vice versa depending on position direction