Strategy 06 · Perpetuals
Funding Capture
Long the asset, short the contract, paid for the difference.
A short perpetual held against an equal long spot position has almost no exposure to price. If the asset rises, the spot gains what the future loses; if it falls, the reverse. What remains is the funding payment, collected whenever the rate is positive. The spot leg is held in custody; the futures leg is margined at the venue. It is the simplest expression of the perpetuals mandate and the largest.
Construction
The asset is bought in the spot market and held in segregated custody. An equal notional of the perpetual is sold at a derivatives venue, with margin posted, as the asset itself, a stablecoin, or where permitted a tokenized Treasury instrument. The two legs are opened as close to simultaneously as possible and rebalanced when price moves change their relative notional.
Choosing where and what
Funding differs by asset and by venue. The strategy ranks the available combinations by expected funding net of the venue’s counterparty risk and the spot leg’s liquidity, and allocates toward the top of the ranking. It rotates as the ranking changes. A high rate at a venue with a thin insurance fund or a history of socialized losses is ranked below a lower rate at a stronger venue.
Collateral
Margin on the futures leg is a permanent share of the position’s capital. Where the venue accepts tokenized Treasury instruments through an off-exchange collateral program, the margin earns a short-duration Treasury yield while it secures the position, return on capital that was already committed, with the collateral held by a custodian rather than the exchange.
Exit
The position is closed when funding falls below the level that compensates for its risks, when the venue’s risk profile changes, or when a better combination is available. Closing is the entry in reverse, buy back the future, sell the spot, and is done in the same size and as close to simultaneously as the entry.
Practice
How Wesvel approaches it
- 01Both legs are managed as one position; notional drift between them is rebalanced on a rule.
- 02Venue and asset selection is made from funding net of counterparty risk, and rotates as that ranking changes.
- 03Margin is posted as yield-bearing collateral held off-exchange wherever the venue permits.
- 04Positions are reduced automatically when funding falls below a recorded threshold.
More in Perpetuals
- How Funding WorksMark price, index price and the periodic payment between longs and shorts that keeps a perpetual tethered to spot.
- Cross-Venue Funding DifferentialsHolding a long perpetual where funding is low against a short where it is high, capturing the difference with no spot leg.
- 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.