perp-funding-basis

# Perpetual Funding Rate & Basis Trading ## Overview Analyze perpetual futures funding rates and spot-futures basis to identify carry trade opportunities, market positioning extremes, and directional sentiment signals. Funding rates are the single most important microstructure indicator in crypto derivatives — they reveal real-time leverage positioning and crowd sentiment. ## Core Concepts ### 1. Funding Rate Mechanics Perpetual futures have no expiry date. Instead, a **funding rate** is exchanged between longs and shorts every 8 hours (on most exchanges) to keep the perpetual price anchored to the spot price. ``` If perp price > spot price → funding rate positive → longs pay shorts If perp price < spot price → funding rate negative → shorts pay longs ``` **OKX funding rate schedule**: payments at 00:00, 08:00, 16:00 UTC **Annualized funding rate:** ```python # Funding rate is a per-8h DECIMAL, exactly as OKX/Binance return it # (the API sends "0.0001" for 0.01%). 3 funding windows/day → × 3 × 365. funding_rate_8h = 0.0001 # 0.01% per 8h, as a decimal annualized = funding_rate_8h * 3 * 365 # 0.1095 → 10.95% annualized ``` > **Units convention (whole skill):** all *code* treats the funding rate as a > per-8h **decimal** (`0.0001` = 0.01%), matching the raw OKX/Binance API value. > The tables below show the equivalent **percentages** for readability — divide > a table's `%` by 100 to get the decimal a comparison expects > (`+0.05%` → `0.0005`). ### 2. Funding Rate Signal Framework | Funding Rate (8h) | Annualized | Market State | Signal | |--------------------|------------|-------------|--------| | > +0.05% | > +54.75% | Extreme long crowding | Contrarian short / reduce longs | | +0.02% to +0.05% | +21.9% to +54.75% | Elevated long bias | Cautious, carry trade viable | | +0.005% to +0.02% | +5.5% to +21.9% | Mild long bias | Neutral to mild bullish | | -0.005% to +0.005% | -5.5% to +5.5% | Balanced | Neutral | | -0.02% to -0.005% | -21.9% to -5.5% | Mild short bias | Neutral to mild bearish | | < -0.02% | < -21.9% | Short squeeze territory | Contrarian long / reduce shorts | **Funding rate regime detection:** ```python def funding_regime(rates_7d): """Classify funding rate regime from 7-day history.""" avg = sum(rates_7d) / len(rates_7d) consecutive_positive = all(r > 0 for r in rates_7d[-3:]) consecutive_negative = all(r < 0 for r in rates_7d[-3:]) if avg > 0.0003 and consecutive_positive: # > +0.03% per 8h return "overheated_long" # High risk of long squeeze elif avg > 0.0001 and consecutive_positive: # > +0.01% per 8h return "bullish_carry" # Good carry trade environment elif avg < -0.0002 and consecutive_negative: # < -0.02% per 8h return "overheated_short" # High risk of short squeeze elif avg < -0.00005 and consecutive_negative: # < -0.005% per 8h return "bearish_carry" # Inverse carry trade else: return "neutral" ``` ### 3. Spot-Futures Basis Analysis **Basis = Futures price - Spot price** For dated futures (quarterly), basis reflects cost-of-carry expectations: ```python # Annualized basis def annualized_basis(futures_price, spot_price, days_to_expiry): basis_pct = (futures_price - spot_price) / spot_price annualized = basis_pct * (365 / days_to_expiry) return annualized # Example: BTC spot $65,000, quarterly future $66,500, 45 days to expiry # Basis: 2.31%, Annualized: 18.7% ``` **Basis signal interpretation:** | Annualized Basis | Market State | Signal | |-----------------|-------------|--------| | > 30% | Extreme contango, euphoric leverage | Sell basis (cash-carry), top warning | | 15-30% | Elevated contango, bullish leverage | Carry trade attractive | | 5-15% | Normal contango | Neutral, mild bullish | | 0-5% | Flat basis | Low conviction, wait for direction | | < 0% (backwardation) | Bearish, forced selling | Contrarian long, extreme pessimism | ### 4. Cash-Carry Arbitrage (Delta-Neutral) **Strategy: buy spot + sell perpetual futures → collect funding rate** ```python # Cash-carry trade P&L def carry_trade_pnl(spot_entry, funding_rates, position_size): """ Delta-neutral carry: long spot + short perp P&L comes purely from funding rate collection. """ total_funding_collected = 0 for rate in funding_rates: if rate > 0: # Longs pay shorts → we collect as short total_funding_collected += rate * position_size else: # Shorts pay longs → we pay as short total_funding_collected += rate * position_size # This is negative return total_funding_collected # Example: $100,000 position, avg funding +0.015% (0.00015 decimal) per 8h, 30 days # Revenue: 0.00015 × 3 × 30 × $100,000 = $1,350 (16.4% annualized) ``` **Carry trade execution on OKX:** 1. Buy spot BTC-USDT on OKX spot market 2. Open equal-sized short BTC-USDT-SWAP on OKX perpetual 3. Net delta = 0 (spot long cancels perp short) 4. Collect positive funding rate every 8 hours 5. Close both legs when funding rate turns negative or basis compresses **Risk factors:** - Funding rate can flip negative → carry becomes a cost - Liquidation risk on short perp if insufficient margin (use 3-5x max leverage) - Exchange counterparty risk (keep position across 2-3 exchanges) - Basis can widen further before mean-reverting → mark-to-market loss on short leg ### 5. Cross-Exchange Funding Arbitrage Different exchanges have different funding rates for the same asset. Arbitrage the spread: ```python # Example: BTC-USDT perpetual funding rates exchange_rates = { # per-8h decimals (API-native) "OKX": 0.00015, # +0.015% per 8h "Binance": 0.00020, # +0.020% per 8h "Bybit": 0.00025, # +0.025% per 8h } # Strategy: short on highest funding (Bybit) + long on lowest funding (OKX) # Net carry = 0.00025 - 0.00015 = 0.00010 per 8h (0.010%) # Annualized: 0.00010 × 3 × 365 = 0.1095 → 10.95% # Risk: execution cost + potential for rates to converge/flip ``` ### 6. Funding Rate as Directional Indicator **Divergence signals (most powerful):** | Price Action | Funding Rate | Interpretation | Signal | |-------------|-------------|----------------|--------| | Price making new highs | Funding declining | Longs not chasing → distribution | Bearish divergence | | Price making new lows | Funding rising (less negative) | Shorts not pressing → accumulation | Bullish divergence | | Price consolidating | Funding spiking positive | Leverage building without breakout | Squeeze risk | | Price consolidating | Funding deeply negative | Shorts paying heavy cost to maintain | Short squeeze imminent | **Historical pattern statistics (BTC):** - Funding > +0.05% for 3+ consecutive periods → 70% probability of a 5-10% correction within 7 days - Funding < -0.03% for 3+ consecutive periods → 65% probability of a 5-15% bounce within 7 days - These are contrarian signals; funding rate extremes indicate crowded positioning ### 7. Open Interest × Funding Rate Matrix ```python # Combined OI + Funding signal def oi_funding_matrix(oi_change_24h_pct, funding_rate): if oi_change_24h_pct > 5 and funding_rate > 0.0003: # funding > +0.03% return "leveraged_long_buildup" # High risk, squeeze potential elif oi_change_24h_pct > 5 and funding_rate < -0.0001: # funding < -0.01% return "leveraged_short_buildup" # Short squeeze potential elif oi_change_24h_pct < -5 and funding_rate > 0: return "long_liquidation" # Forced long closing elif oi_change_24h_pct < -5 and funding_rate < 0: return "short_liquidation" # Forced short closing elif abs(oi_change_24h_pct) < 2 and abs(funding_rate) < 0.00005: # |funding| < 0.005% return "quiet_market" # Low conviction, wait else: return "mixed" ``` ## Data Access ### Via OKX API ```python # Funding rate history # GET /api/v5/public/funding-rate-history?instId=BTC-USDT-SWAP # Current funding rate # GET /api/v5/public/funding-rate?instId=BTC-USDT-SWAP # Open interest # GET /api/v5/public/open-interest?instType=SWAP&instId=BTC-USDT-SWAP ``` Use `load_skill("okx-market")` for OKX data retrieval patterns. ### Key Metrics to Track | Metric | Source | Frequency | Alert Threshold | |--------|--------|-----------|-----------------| | BTC funding rate (8h) | OKX / Binance | Every 8h | > +0.05% or < -0.03% | | ETH funding rate (8h) | OKX / Binance | Every 8h | > +0.05% or < -0.03% | | Annualized basis (quarterly) | OKX | Continuous | > 30% or < 0% | | BTC open interest change | OKX | Hourly | > ±5% in 24h | | Cross-exchange funding spread | Multi-exchange | Every 8h | Spread > 0.02% | ## Output Format ``` ## Funding Rate & Basis Analysis — [Asset] ### Current Funding Rates | Exchange | 8h Rate | Annualized | Regime | |----------|---------|------------|--------| | OKX | +0.015% | +16.4% | bullish_carry | | Binance | +0.020% | +21.9% | bullish_carry | ### Basis Structure - **Spot price**: $XX,XXX - **Perp price**: $XX,XXX (premium: X.XX%) - **Quarterly futures**: $XX,XXX (annualized basis: X.X%) - **Basis regime**: [contango / flat / backwardation] ### Funding History (7-day) - **Average**: +X.XXX% - **Trend**: [rising / stable / declining] - **Consecutive direction**: [X periods positive/negative] ### Open Interest - **Current OI**: $X.XB - **24h change**: [+/-X%] - **OI × Funding signal**: [leveraged_long_buildup / quiet / etc.] ### Carry Trade Opportunity - **Best carry**: [short on Exchange X, long spot] - **Expected annualized yield**: X.X% - **Risk**: [funding flip probability, liquidation distance] ### Directional Signal - **Funding regime**: [overheated / bullish / neutral / bearish / oversold] - **Divergence**: [none / bullish / bearish] - **Confidence**: [high / medium / low] ``` ## Notes - Funding rates are exchange-specific; always compare across OKX, Binance, and Bybit for the full picture - Extremely high funding rates are a **cost** for longs, not a bullish signal — they indicate overcrowded positioning - Cash-carry trades have execution risk: slippage on entry/exit, funding rate flipping, and exchange downtime during volatility - Basis and funding rate signals work best when combined with on-chain data (MVRV, exchange flows) - This framework is for research purposes only and does not constitute investment advice