Funding Rate Capture

The strategy buys an asset in the spot market and sells an equal notional in that asset’s perpetual contract. If the price rises, the spot leg gains what the futures leg loses; if it falls, the reverse. What remains is the funding payment, settled at each interval directly between position holders, with the exchange taking no side.

Because the two legs are on different venues (spot in custody, futures at the derivatives exchange), the position is a portfolio, not a single trade. Its risk is the risk of the two legs drifting apart in size or in value, and the risk of one venue failing.

Funding is a price for leverage, set continuously by crowd demand. Retail and momentum-driven participants pay it to hold levered longs; the strategy receives it for supplying the other side. The return is therefore cyclical: it rises when speculative appetite is high and compresses or inverts when positioning turns defensive.

Wesvel treats funding as a rate market. Positions are sized to the current and expected funding regime across assets and venues, rotated toward the assets where the rate is most attractive relative to the risk of the hedge, and reduced when the regime turns.

Not every asset with high funding is a good candidate. The spot leg must be liquid enough to build and unwind without moving price, and the perpetual must have depth on both sides so the hedge can be adjusted. Venue selection weighs funding level against counterparty quality: a higher rate at a weaker exchange is often not worth the concentration.