The Complete Funding Rate Glossary
Whether you're new to funding rate arbitrage or a seasoned trader, having a clear understanding of terminology is essential. This comprehensive glossary covers 60+ terms you'll encounter in perpetual trading and funding arbitrage.
Use Ctrl+F (or Cmd+F on Mac) to quickly find specific terms.
A
Annual Percentage Rate (APR)
The yearly rate of return on an investment, not accounting for compounding. In funding arbitrage, APR is calculated by annualizing the funding rate. Example: A 0.01% per 8-hour funding rate equals approximately 10.95% APR (0.01% × 3 × 365).
Annual Percentage Yield (APY)
Similar to APR but includes the effect of compounding. APY is always higher than APR when compounding is possible. For funding arbitrage, the difference is minimal unless you're reinvesting profits frequently.
Arbitrage
The practice of profiting from price differences of the same asset across different markets or exchanges. Funding rate arbitrage specifically exploits differences in funding payments between long and short positions.
Ask Price
The lowest price a seller is willing to accept for an asset. Also called the "offer price." The difference between ask and bid is the spread.
B
Basis
The difference between the spot price and the futures/perpetual price. A positive basis means futures trade at a premium; negative basis means they trade at a discount.
Basis Trade
A strategy that profits from the convergence of spot and futures prices. Related to, but distinct from, funding arbitrage.
Bid Price
The highest price a buyer is willing to pay for an asset. Traders selling into the bid receive this price.
Bid-Ask Spread
The difference between the highest bid and lowest ask. Tighter spreads indicate higher liquidity. Important for arbitrage execution costs.
C
Carry Trade
A strategy where traders profit from holding an asset that generates yield. Funding arbitrage is a type of carry trade where the "carry" comes from funding payments.
Close Position
Exiting a trade by taking the opposite action. Closing a long means selling; closing a short means buying back.
Collateral
Assets deposited to secure a leveraged position. Can be the traded asset (e.g., ETH) or a stablecoin (e.g., USDC). If losses exceed collateral, liquidation occurs.
Cross-Margin
A margin mode where all available balance in your account serves as collateral for all positions. Offers more buffer but risks your entire account.
D
Delta
The rate of change in a derivative's price relative to the underlying asset. A delta of 1 means the position moves 1:1 with the asset.
Delta-Neutral
A position with zero net delta, meaning it's not exposed to price movements. This is the foundation of funding arbitrage - you're long and short equal amounts, so price changes cancel out.
DEX (Decentralized Exchange)
An exchange that operates without a central authority, using smart contracts. Popular perpetual DEXs include Hyperliquid, Paradex, dYdX, and GMX.
Double-Perp Strategy
A funding arbitrage approach using two perpetual positions on different exchanges - long on one, short on another. Contrasts with spot/perp strategy.
E
Entry Price
The price at which you open a position. Your P&L is calculated from this reference point.
Equity
The total value of your account, including unrealized P&L. Equity = Collateral + Unrealized P&L.
Exchange Rate Risk
The risk that currency values change unfavorably. In crypto, this can refer to stablecoin depegging or cross-currency exposure.
Execution Risk
The risk of not being able to execute trades at expected prices due to slippage, low liquidity, or technical issues.
F
Funding Fee
The actual payment made or received based on the funding rate and position size. Funding Fee = Position Size × Funding Rate.
Funding Interval
How often funding payments occur. Most exchanges use 8-hour intervals, but some (like Hyperliquid for certain pairs) use 1-hour intervals.
Funding Rate
A periodic payment between long and short traders that keeps perpetual prices aligned with spot prices. The core concept of this strategy. Learn more in our complete guide to funding rates.
- Positive funding: Longs pay shorts
- Negative funding: Shorts pay longs
Funding Rate Arbitrage
The strategy of earning funding payments while remaining delta-neutral. By being long and short simultaneously, you collect funding without directional exposure. See our beginner's guide to earning $100 with this strategy.
G
Greeks
Risk measures borrowed from options trading. For perpetuals, delta is most relevant. A delta-neutral position has near-zero delta.
GMX
A popular decentralized perpetual exchange on Arbitrum and Avalanche, using a unique liquidity model.
H
Hedge
A position taken to offset risk in another position. In funding arbitrage, your long hedges your short (and vice versa).
Hyperliquid
A high-performance perpetual DEX known for low fees and high liquidity. One of the most popular platforms for funding arbitrage. Use our referral for -5% fees. Compare with other exchanges on our dashboard.
I
Implied Funding Rate
The expected funding rate based on the premium/discount between perpetual and spot prices. Useful for predicting future funding.
Initial Margin
The minimum collateral required to open a position. Higher leverage requires lower initial margin (but increases risk).
Isolated Margin
A margin mode where only the allocated collateral is at risk for a specific position. Safer than cross-margin but requires more active management.
L
Leverage
Borrowed capital that amplifies both gains and losses. 5x leverage means a 1% price move results in a 5% P&L change.
Limit Order
An order to buy or sell at a specific price or better. Preferred for entering arbitrage positions to control execution costs.
Liquidation
Forced closure of a position when collateral falls below the maintenance margin requirement. The primary risk in leveraged trading.
Liquidation Price
The price at which your position will be automatically closed. Distance to liquidation price is a key risk metric.
Long Position
A bet that an asset's price will increase. In funding arbitrage, your long position earns when funding is negative.
LP (Liquidity Provider)
Someone who provides capital to a trading pool. Some perpetual DEXs use LP models (like GMX).
M
Maintenance Margin
The minimum equity required to keep a position open. Falling below this triggers liquidation.
Maker
A trader who adds liquidity by placing limit orders that don't immediately execute. Makers often receive fee rebates.
Maker Fee
The fee paid (or rebate received) for maker orders. Many DEXs offer negative maker fees (rebates) to incentivize liquidity.
Margin
Collateral deposited to secure a leveraged position. Can be expressed as a ratio (margin ratio) or absolute amount.
Margin Call
A warning that your equity is approaching the maintenance margin level. Time to add collateral or reduce position size.
Mark Price
The fair value price used for liquidation calculations, typically an average of spot prices across exchanges. Prevents manipulation-driven liquidations.
Market Neutral
Another term for delta-neutral. A strategy that profits regardless of market direction.
Market Order
An order to buy or sell immediately at the best available price. Faster but may suffer slippage.
N
Negative Funding
When short traders pay long traders. Occurs when perpetual prices trade below spot (bearish sentiment).
Net Position
Your total exposure across all positions in an asset. In perfect arbitrage, your net position is zero.
Notional Value
The total value controlled by a position. For 1 BTC at $100,000, the notional value is $100,000 regardless of how much margin you used.
O
Open Interest
The total number of outstanding perpetual contracts. High open interest indicates an active market.
Oracle
A service that provides external data (like spot prices) to smart contracts. Critical for accurate mark prices and liquidations.
Order Book
A list of all open buy and sell orders for an asset. Deeper order books = better liquidity.
P
Paradex
A perpetual DEX built on StarkWare technology, known for zero trading fees and XP rewards. Use our referral. Read our full Paradex Review 2025.
PnL (Profit and Loss)
The gain or loss on a position. Can be unrealized (position still open) or realized (position closed).
Perpetual Contract / Perpetual Swap
A derivative that tracks an underlying asset's price without an expiration date. The funding rate mechanism keeps prices aligned with spot.
Position Size
The total value or quantity of an asset in your position. Larger positions earn more funding but carry more risk.
Premium
When perpetual prices trade above spot prices. Indicates bullish sentiment and typically results in positive funding.
Price Impact
The change in market price caused by a trade. Large orders in low-liquidity markets have high price impact.
R
Realized PnL
Profit or loss that has been locked in by closing a position. Contrasts with unrealized PnL.
Risk-Adjusted Return
Returns measured relative to the risk taken. Funding arbitrage typically has excellent risk-adjusted returns due to delta neutrality.
Rollover
In traditional futures, moving from an expiring contract to a new one. Not applicable to perpetuals (they don't expire).
S
Short Position
A bet that an asset's price will decrease. In funding arbitrage, your short position earns when funding is positive.
Short Squeeze
Rapid price increase forcing short sellers to buy back, causing further price increases. Can cause temporary losses in arbitrage if exchanges diverge.
Slippage
The difference between expected and actual execution price. More significant in low-liquidity markets.
Smart Contract
Self-executing code on a blockchain that enforces agreement terms. Perpetual DEXs run on smart contracts.
Spot Market
A market for immediate delivery of assets. Spot prices serve as the reference for perpetual funding rates.
Spot/Perp Strategy
Funding arbitrage using a spot position (owning the actual asset) combined with a perpetual short. Considered safer than double-perp. Learn how in our Spot/Perp Funding Arbitrage guide.
Spread
The difference between two related prices. Can refer to bid-ask spread, basis spread, or cross-exchange price differences.
Stablecoin
A cryptocurrency designed to maintain a stable value, typically $1. Common collateral for perpetual positions (USDC, USDT, DAI).
Stop-Loss
An order to close a position at a specified price to limit losses. Less common in arbitrage but useful for risk management.
T
Taker
A trader who removes liquidity by placing orders that execute immediately. Takers typically pay higher fees.
Taker Fee
The fee paid for taker orders. Usually higher than maker fees.
Time-Weighted Average Price (TWAP)
An average price over a specific time period. Often used in funding rate calculations.
Total Value Locked (TVL)
The total assets deposited in a DeFi protocol. A measure of protocol size and trust.
U
Underlying Asset
The asset that a derivative's value is based on. For a BTC perpetual, BTC is the underlying.
Unrealized PnL
Paper profit or loss on an open position. Becomes realized when you close the position.
V
Volatility
The degree of price variation over time. High volatility can increase liquidation risk but also creates arbitrage opportunities.
Volume
The total amount traded in a period. Higher volume typically means better liquidity and tighter spreads.
W
Wallet
Software or hardware that stores cryptocurrency private keys. Required to interact with decentralized exchanges.
Whale
A trader with a very large position. Whale movements can significantly impact funding rates.
X
XP (Experience Points)
Reward points earned on some exchanges for trading activity. Paradex and other DEXs offer XP that may convert to airdrops.
Y
Yield
Return on investment, usually expressed as a percentage. Funding arbitrage generates yield through funding payments.
Yield Farming
Strategies to maximize returns in DeFi. Funding arbitrage is a form of yield farming with lower risk than most alternatives.
Z
Zero-Sum
A situation where one party's gain equals another's loss. Perpetual trading is zero-sum: funding paid by longs equals funding received by shorts.
Quick Reference: Key Formulas
Funding Rate to APR
APR = Funding Rate × Intervals Per Day × 365
APR = 0.01% × 3 × 365 = 10.95%
Position Funding Payment
Funding Payment = Position Size × Funding Rate
$100,000 position × 0.01% = $10 per interval
Leverage Calculation
Leverage = Position Size / Collateral
$100,000 / $20,000 = 5x leverage
Liquidation Price (Long)
Liq Price ≈ Entry Price × (1 - 1/Leverage + Maintenance Margin)
For 5x long: Entry × (1 - 0.2 + 0.005) ≈ Entry × 0.805
Start Your Arbitrage Journey
Now that you understand the terminology, put your knowledge into practice:
- Explore opportunities on FundingView Dashboard
- Track your positions with My Funding
- Learn strategies in our other guides
Bookmark this glossary - you'll find yourself coming back to it as you deepen your trading expertise.
Related Articles
- What Are Funding Rates? Complete Guide - Deep dive into funding mechanics
- Is Funding Rate Arbitrage Safe? - Understand all the risks
- Earn Your First $100 - Beginner tutorial
- Spot/Perp Arbitrage Strategy - Advanced strategy
- Paradex Review 2025 - Zero-fee exchange analysis
This glossary is regularly updated. Last update: January 2025.