Strategy 06 · Perpetuals
Cross-Venue Funding Differentials
Same asset, two venues, two rates.
Funding for the same asset differs across exchanges because each venue has its own participants and its own leverage demand. A long perpetual on the venue where funding is low, against a short perpetual on the venue where it is high, has no exposure to the asset’s price and no spot leg to custody. It earns the difference between the two rates, and carries two counterparties instead of one.
Why rates differ
Retail-heavy venues tend to carry higher positive funding, because their participants skew long and levered. Institutional venues carry lower or more balanced funding. Regional venues reflect regional flows. Venues with different collateral rules, fee structures or maximum leverage attract different participants. The differentials are persistent enough to trade and variable enough to need managing.
The position
Equal notionals of the same perpetual are held long on one venue and short on the other. Each leg is margined at its venue. Price moves produce offsetting gains and losses, but they land in different accounts, a rally puts profit in the long account and loss in the short, so margin must be moved between venues as price trends. That rebalancing is the position’s operating cost and its principal operational risk.
When it comes apart
The differential can invert. One venue’s mark price can diverge from the other’s, so the two legs stop offsetting during exactly the move that matters. One venue can suspend withdrawals, trapping the profit that was meant to fund the other leg’s margin. Position size is set from these failure modes, not from the differential.
Practice
How Wesvel approaches it
- 01Positions are sized under both venues’ counterparty limits independently, not the smaller of the two.
- 02Margin headroom on each leg is held sufficient to survive a defined price move without a transfer from the other venue.
- 03Mark-price divergence between the two venues is monitored, and the position is reduced when it exceeds a recorded band.
- 04The differential is tracked as a rate series and the position closed on a rule when it compresses below its risk cost.
More in Perpetuals
- How Funding WorksMark price, index price and the periodic payment between longs and shorts that keeps a perpetual tethered to spot.
- Funding CaptureThe core carry position: spot in custody against a short perpetual at the venue, collecting funding with near-zero price exposure.
- Perpetual vs. Dated BasisTrading the perpetual’s realized funding against the interest rate implied by a dated future’s premium.
- Exposure with Managed RiskHow the desk uses perpetuals to add exposure to a view it wants more of, and the sizing, margin and cost discipline that keeps leverage a tool rather than the trade.
- Liquidation ManagementManaging the gap between a position and its liquidation price, margin, sizing, and what happens in the tail.
- Venue DiligenceHow derivatives venues are reviewed before the book trades on them, and what puts one off the list.