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Why Is a Highly Negative Funding Rate Also an Arbitrage Opportunity?

A highly negative funding rate signals a significant discount (backwardation) and means short holders are paying long holders. Arbitrageurs can exploit this by taking a long position in the perpetual contract and simultaneously shorting the equivalent amount of the underlying asset in the spot market.

They profit by collecting the high negative funding rate payments while their net market exposure is hedged.

What Is the ‘Funding Rate’ in a Perpetual Swap and Who Pays It?
How Does the Funding Rate Create an Arbitrage Opportunity for Market Participants?
How Does the ‘Funding Rate’ Mechanism Ensure the Perpetual Swap Price Tracks the Spot Price?
What Is the Funding Rate Mechanism in Perpetual Futures and Why Is It Crucial?