# Arbitrage

> Arbitrage is the simultaneous purchase and sale of the same or an equivalent exposure in two places to capture a price difference, with, in theory, no directional risk. In practice every real arbitrage carries execution, funding, counterparty and basis risk, which makes it closer to a carry trade than to free money. The arithmetic is unforgiving: a 0.30% gross spread paid through two 0.10% taker fees and 0.05% of slippage on each side nets exactly 0.00%.

Canonical HTML page: https://qanterion.com/glossary/arbitrage
Updated: 2026-09-02
Also known as: funding-rate arbitrage, statistical arbitrage, cash-and-carry

## How it is calculated

```
net edge = gross spread − fees(both legs) − slippage(both legs) − funding − transfer cost

Cash-and-carry (long spot, short perpetual):
  income = funding rate × notional × intervals
  annualised = funding rate × intervals per day × 365
  (assumes the rate persists — it does not)

Example: 0.30% − 2 × 0.10% (taker) − 2 × 0.05% (slippage) = 0.00%
```

## Worked example

A 0.30% price gap between two exchanges, crossed with a 0.10% taker fee and 0.05% slippage on each side, leaves 0.30% − 0.20% − 0.10% = 0.00% before the transfer fee.

## Three forms a retail trader actually meets

Cross-exchange spot arbitrage buys on the cheaper venue and sells on the dearer one; fees and transfer time eat most of it, and the gap is usually gone before the coins arrive. Cash-and-carry on perpetual futures holds spot, shorts the perpetual and collects funding — the BIS paper on crypto carry documents that the income is compensation for margin and liquidation risk, not an anomaly. Statistical arbitrage trades a pair or a mean-reverting spread; it is a bet on convergence, not a locked-in profit, and the spread can widen for longer than the account can fund it.

## Why the spread is widest exactly when you are forced out

Shleifer and Vishny showed that arbitrageurs manage capital belonging to other investors, and that this capital leaves exactly when the spread blows out — the moment the trade is most attractive is the moment the arbitrageur is least able to hold it. The same mechanism applies to a retail perpetual position: the margin call on the short leg arrives during the squeeze that widened the basis. Net edge is gross spread minus fees on both legs, slippage on both legs, funding and transfer cost; if that number is not positive before the order is sent, there is no arbitrage, only a hedged position with costs. The funding-rate calculator on this site shows the per-interval and annualised cost of the perpetual leg; the managed strategies QANTERION runs are momentum and mean reversion, not arbitrage.

## How it gets misread

The word gets attached to anything that is hedged, and to the funding-rate trade in particular, which is sold as an annualised yield: 0.01% every eight hours, three times a day, 365 days, "about 11% a year". The arithmetic assumes the rate persists, and it does not — funding flips sign, the perpetual leg can be liquidated in a squeeze while the spot leg sits on another venue, and the capital is split in two, so the yield is earned on half the money at best. A hedge with costs is not an arbitrage; an arbitrage is a spread that is still positive after every cost is subtracted.

## Calculate it

- Funding Rate Calculator: https://qanterion.com/tools/funding-rate-calculator
- Crypto PnL Calculator: https://qanterion.com/tools/crypto-pnl-calculator

## See also

- Funding rate: https://qanterion.com/glossary/funding-rate
- Maker and taker fees: https://qanterion.com/glossary/maker-taker-fees
- Slippage: https://qanterion.com/glossary/slippage

## Sources

- [The Limits of Arbitrage](https://www.nber.org/papers/w5167) — National Bureau of Economic Research (Shleifer & Vishny), Working Paper 5167
- [BIS Working Papers No 1087: Crypto carry](https://www.bis.org/publ/work1087.pdf) — Bank for International Settlements
- [Fundamentals of Perpetual Futures](https://arxiv.org/abs/2212.06888) — Songrun He, Asaf Manela, Omri Ross and Victor von Wachter (arXiv:2212.06888)

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## Risk notice

Definitions are educational. Nothing here is investment advice, and no metric described on this page predicts future results.