Historical Examples

Spot-perpetual arbitrage

Spot-Perpetual Arbitrage

Overview The chart represents the funding rate over a period of time. The x-axis shows the time in Unix timestamp format, and the y-axis represents the funding rate values.

Key Observations:

1. Time Period:

   • The data covers a period from approximately 1.59e+12 to 1.71e+12 Unix timestamps, May 2020 to May 2024.

2. Volatility:

   • The funding rate shows high volatility in the earlier part of the chart. There are significant spikes and dips, particularly between Sep 2020 to May 2021.

   • However, the volatility appears to decrease after August 2021, continuing to stabilise with fewer and smaller spikes. This change can be attributed to an increased volume in futures trading and more traders opting for perpetual futures instead of spot trading.

3. Extreme Values:

   • The highest observed positive funding rate is around 0.0025, and the lowest observed negative funding rate is approximately -0.001.

   • This indicates that while the funding rate can spike up to 0.0025 during bullish market conditions, it does not fall below -0.001 even during bearish markets, as observed during the highly bearish period in 2022.

Contango Arbitrage

Overview The chart represents the decay of contango over a period. The y-axis shows the value of contango, spread between futures price and spot price, and the x-axis represents time in the trading period.

Contango Decoy

Key Observations:

1. Initial Value:

   • The chart starts with a contango value slightly above 200 and initially rises to a peak value near 350.

2. Peak and Decline:

   • After reaching the peak, the contango value exhibits a sharp decline, falling below 100.

   • This demonstrates that although contango may temporarily increase, it will subsequently decay to compensate for the rise.

3. General downward trend:

   • There are several fluctuations where the contango value momentarily stabilises or slightly increases but continues on a general downward trend.

4. Eventuates to 0:

   • Eventually, the contango value crosses into negative territory, indicating a shift from contango to backwardation.

   • This assures us that regardless of how high the contango rises, our trade will eventually be profitable as the futures prices converge with the spot price when we approach the expiry date of the futures contract.