How Does the Funding Rate in Perpetual Futures Contracts Create Arbitrage Opportunities?

The funding rate is a periodic payment between long and short traders to keep the perpetual futures price anchored to the spot price. If the funding rate is positive, longs pay shorts; if negative, shorts pay longs.

Arbitrageurs can exploit this by simultaneously holding a position in the perpetual future and an opposite position in the spot market. If the funding rate is high enough to cover trading costs, the arbitrageur locks in the funding payment as profit.