We understand the fear of missing out (FOMO) can be intense in the fast-paced world of crypto, but today we’re focusing on how to leverage funding rates for your advantage, minimizing risk while staying active in the market. We take a look at the basis trade that can be done in crypto futures…
What Are Funding Rates and How Can They Be Profitable?
Funding rates are periodic payments made between traders based on the difference between perpetual contract markets and spot prices. When funding rates are high, as they are during market rallies, they create lucrative opportunities for basis trading.
This involves buying the underlying asset at the spot price and simultaneously shorting a perpetual futures contract.
How Can Traders Execute These Basis Trades?
To capitalize on these opportunities, traders should:
- Buy (long) the token on Spot or Convert.
- Sell (short) the same amount of tokens as Perpetual contracts.
- Monitor the funding rates since they update every eight hours.
- Unwind the trades when it’s anticipated that funding rates will decrease for an extended period.
Profit Potential for These Trades
While it’s impossible to predict exact profits due to fluctuating funding rates, the current rates are significantly higher than usual, indicating strong potential for profitable trades.
What Should Traders Consider Before Engaging in Basis Trades?
When engaging in basis trades, traders must consider:
- Entry and exit costs, including trading fees and potential slippage.
- Execution risk during volatile market conditions.
- Liquidation risk, especially with leveraged positions on futures exchanges. It’s advised to monitor the market and maintain adequate margin or opt for 1x leverage to mitigate this risk.
“USDT is necessary for both Spot purchases and as margin for Perpetual contracts.”
Conclusion
In conclusion, while several exchanges provide these opportunities, it’s crucial for traders to conduct thorough research and consider their risk tolerance before executing trades. Exchanges with the best liquidity and reputability are preferred. Therefore, check out our exchanges here.
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