Futures Arbitrage Guide

If a perp is cheaper on Exchange A and more expensive on Exchange B, the trader may go long on A and short on B. The aim is to profit if the difference narrows or if the funding setup pays the position.

• Go long where the contract is relatively cheap.
• Go short where the contract is relatively expensive.
• The two legs together reduce direct market direction risk.

Perp prices can differ because of different demand, index calculation, funding intervals or liquidity. Even a hedged position can see the two legs move apart for a while before converging.

• Different order flow moves each exchange separately.
• Index and mark price methods differ between venues.
• One exchange can spike on thin liquidity.

Execution quality is everything. Entry spread is the cost of opening both legs now; exit spread is the cost of closing them later. A good entry can still lose if the exit is expensive.

• Judge the trade on executable prices, not last price.
• A favorable entry does not guarantee a favorable exit.
• Plan the exit before you open the position.

Futures introduce margin, mark price, funding and liquidation. Leverage magnifies both the edge and the risk, so position size and margin mode matter as much as the spread.

• High leverage can liquidate one leg on a temporary divergence.
• Funding can add to or subtract from the result.
• Close both legs together to lock the captured spread.