Funding arbitrage and price arbitrage are often confused because the trade structure looks identical — open opposing positions on two venues. The economic logic, hold period, and risk profile are completely different.
Funding Arbitrage
Captures the funding-rate gap between two venues. The mark price on both venues is usually the same; only the funding rate differs. You hold the position indefinitely, collecting the rate spread every settlement window. Exit when the spread compresses or fees eat it up.
- What you watch: funding rate APR on both legs
- Hold period: hours to weeks
- P&L source: accrued funding payments
- Risk: rate spread compresses or flips before you exit
Price Arbitrage (Convergence Trade)
Captures a temporary mark-price difference between two venues quoting the same asset. The funding rates may be identical; what differs is the spot/mark itself. You long the cheap venue, short the rich one, and exit when the prices converge — usually within hours, not days.
- What you watch: mark-price spread (in % or bps) between two venues
- Hold period: minutes to hours
- P&L source: spread compression on entry vs exit
- Risk: spread widens further before converging
Why You Can't Mix Them
A common rookie mistake: see a 19% "spread" on /arbitrage, open the trade hoping to collect 19% APR. But that 19% isn't an annualized rate — it's a point-in-time mark-price gap. If the prices converge in 30 minutes, you make 19% in 30 minutes. If they don't converge, you make zero (or lose if the gap widens).
When to Use Which
Use funding arbitrage when…
- You want a passive yield strategy with longer holds
- Rates show a persistent (not spike-driven) gap above ~10% APR after costs
- Liquidity on both legs supports your size
Use price arbitrage when…
- You see a fresh spread above 0.3% on liquid pairs (cracks faster than that, but harder to enter)
- You can monitor positions for minutes-to-hours (it's not passive)
- You have low-fee venues on both sides
The trades are complementary. A serious operator runs both books in parallel: funding-arb for baseline yield, price-arb for occasional bursts of higher return when venues quote out of sync.