London, United Kingdom–(Newsfile Corp. – April 25, 2022) – Huobi Global, one of the world’s leading digital asset exchanges, today announced the launch of a funding rate arbitrage product for perpetual swap trading, enabling traders to gain profits from high-yielding funding fees while optimizing their investment strategies.
Photo: Huobi Futures
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Similar to other types of derivatives, perpetual swaps allow traders to speculate on the future price movements of cryptocurrencies with the core difference being that perpetual swaps do not have expiration dates. Under such circumstances, exchanges implement a funding rate mechanism which helps balance the short and long positions of perpetual swaps by either incentivizing or discouraging traders.
Funding rates play a significant role in the perpetual swaps market because they help balance the demand for the short and long side of perpetual swaps, keeping the contract price in line with the spot price at all times. Funding rates vary as the prices of the underlying assets turn bullish or bearish. Traders will either pay or receive funding rates depending on their open positions: when the funding rate is positive, the longs should pay the shorts, and vice versa. Huobi Global calculates the funding rate three times a day.
The launch of the new funding rate arbitrage product allows traders to gain funding fees through subscribing to an asset product based on its annual percentage yield and funding rates (current term and next term.) The process involves 1) purchasing a certain amount of the asset in the spot market and 2) opening a short position of the asset (same amount as the spot assets) in the futures market. The price movement will offset the profit and loss originating from the spot and futures market allowing traders to earn funding fees right after every funding rate calculation, without having to close their positions.
Huobi Global offers coin-margined swaps and USDT-margined swaps for implementing funding rate arbitrage strategies. The annual trading volume of Huobi swap contracts in 2021 reached US$5.9 trillion, with an average of US$13.97 billion per day. The monthly volume of USDT-margined swaps reached the highest in May 2021, standing at US$827.8 billion. The high trading volume ensures ease of liquidity for traders.
“Huobi Futures allows a smooth transition between spot and futures markets. By using the arbitrage strategies provided by our new product, perpetual swap traders can earn trading fees much more easily,” said Du Jun, Co-Founder of Huobi. “Coupled with our sophisticated risk control system that can help reduce liquidation risk when users take highly leveraged positions, traders should have complete confidence trading on our platform.”