Trading Strategy Guide

Understanding how the Wealth bot generates profits through funding rate arbitrage

Overview

The Wealth bot implements a funding rate arbitrage strategy that profits from differences in funding rates across cryptocurrency exchanges while maintaining delta-neutral positions (no exposure to price movements).

Strategy Flow

stateDiagram-v2
    [*] --> Monitoring: Start Bot
    
    Monitoring --> Evaluating: Found Opportunity
    Evaluating --> Monitoring: Below Threshold
    Evaluating --> Executing: Meets Criteria
    
    state Executing {
        [*] --> PlacingLong
        PlacingLong --> PlacingShort
        PlacingShort --> Hedging
        Hedging --> Completed
        PlacingLong --> RollingBack: Failure
        PlacingShort --> RollingBack: Failure
        RollingBack --> RolledBack
    }
    
    Executing --> Active: Completed
    Executing --> Monitoring: RolledBack
    
    Active --> Closing: Exit Trigger
    Closing --> Monitoring: Position Closed
    
    note right of Active
        Exit Triggers:
        - Target profit reached
        - Spread reversal
        - Trailing stop
        - Max duration
    end note

What Are Funding Rates?

Funding rates are periodic payments exchanged between traders holding long and short positions in perpetual futures contracts. They keep the perpetual futures price aligned with the spot price.

Positive funding rate: Longs pay shorts
Negative funding rate: Shorts pay longs
Payment frequency: Varies by exchange:
- Binance/Bybit: Every 8 hours (3× daily)
- HyperLiquid: Every 1 hour (24× daily)
- Aster: Every 4-8 hours depending on symbol (fetched automatically)

How the Strategy Works

The Arbitrage Opportunity

flowchart TB
    subgraph Funding["Funding Rate Arbitrage"]
        direction TB
        A[Exchange A<br/>Low Funding Rate] 
        B[Exchange B<br/>High Funding Rate]
        
        A -->|"LONG Position<br/>(Pay low funding)"| POS[Delta-Neutral<br/>Position]
        B -->|"SHORT Position<br/>(Receive high funding)"| POS
        
        POS -->|"Net Profit"| PROFIT["Spread = High Rate - Low Rate"]
    end
    
    style A fill:#c8e6c9
    style B fill:#ffcdd2
    style POS fill:#e3f2fd
    style PROFIT fill:#fff9c4

Different exchanges often have different funding rates for the same asset. The bot exploits this by:

Opening a LONG position on the exchange with the lower (or negative) funding rate
Opening a SHORT position on the exchange with the higher funding rate
Collecting the spread between the two rates every funding period

Delta-Neutral = Market-Neutral

Because you hold equal and opposite positions:

If BTC price goes up: Your long profits, your short loses → net zero
If BTC price goes down: Your long loses, your short profits → net zero
Your only P&L comes from the funding rate difference

Visual Example

Exchange A (Binance):    Funding Rate = +0.01%  → You go LONG  (receive 0.01%)
Exchange B (HyperLiquid): Funding Rate = +0.05% → You go SHORT (pay 0.05%)

Your position:
┌─────────────────────────────────────────────────────────────┐
│  LONG 0.1 BTC on Binance    ←→    SHORT 0.1 BTC on HyperLiquid  │
│  (Receive funding)                (Pay funding)                 │
└─────────────────────────────────────────────────────────────┘

Net result per 8-hour period:
  Receive: +0.01% on Binance
  Pay:     -0.05% on HyperLiquid
  ────────────────────────────
  Wait... that's negative!

Actually, you want the OPPOSITE - go SHORT where rates are HIGH:
  Pay:     -0.01% on Binance (you're long, you pay positive funding)
  Receive: +0.05% on HyperLiquid (you're short, you receive positive funding)
  ────────────────────────────
  Net: +0.04% profit per 8 hours

Profit Calculation Example

Position size: $10,000 per side
Funding spread: 0.04% (4 basis points)
Leverage: 10x

Per funding period (every 8 hours):
  Profit = $10,000 × 0.0004 = $4.00

Daily (3 funding periods):
  Profit = $4.00 × 3 = $12.00

Monthly:
  Profit = $12.00 × 30 = $360.00

Annualized APY:
  APY = 0.04% × 3 × 365 = 43.8%

When Does the Bot Open Positions?

The bot continuously monitors funding rates and opens positions when:

Spread exceeds threshold: The funding rate difference meets your configured minimum (default: 0.04%)
Sufficient balance: You have enough collateral on both exchanges
Position limits not reached: You haven't hit your maximum concurrent positions
Positive expected value: After accounting for fees and slippage, the trade is profitable

When Does the Bot Close Positions?

Positions are closed automatically when:

Target profit reached: Default 5% profit on position
Spread reverses: The funding rate advantage disappears or reverses
Trailing stop triggered: Profit retraces too much from peak (protects gains)
Manual shutdown: You stop the bot gracefully

Risk Management Features

Delta-Neutral Protection

Equal position sizes on both exchanges
No exposure to price movements
Profit comes only from funding rate spread

Slippage Protection

Uses limit orders with timeout
Falls back to market orders if needed
Configurable maximum slippage tolerance

Trailing Stop Loss

Activates after reaching profit threshold (default: 3%)
Locks in minimum profit (default: 2%)
Closes if profit retraces too much from peak

Atomic Execution

Opens both legs simultaneously
If one leg fails, the other is rolled back
Prevents unhedged (risky) positions

Position Size Limits

Maximum position size cap (USD)
Maximum percentage of balance per trade
Maximum concurrent positions

Configuring the Strategy

Key parameters in config.toml:

[trading]
# Minimum spread to open a position (0.04% = 4 basis points)
min_funding_spread = 0.04

# Position sizing
position_size_percent = 0.30    # Use 30% of available balance
max_position_usd = 10000        # Cap at $10,000 per position
max_concurrent_positions = 5    # Maximum open positions

# Profit targets
target_profit_percent = 0.05    # Close at 5% profit

[risk]
# Trailing stop configuration
trailing_stops_enabled = true
trailing_stop_activation = 0.03  # Activate at 3% profit
trailing_stop_distance = 0.40    # Allow 40% retracement
trailing_stop_min_lock = 0.02    # Lock in minimum 2%

# Slippage protection
max_slippage_bps = 50           # Maximum 0.5% slippage

Understanding Expected Value (EV)

Before opening a position, the bot calculates the expected value - whether the trade will be profitable after costs:

flowchart LR
    subgraph EV["Expected Value Calculation"]
        SPREAD[Funding Spread] --> GROSS[Gross EV]
        TIME[Time Weight] --> GROSS
        
        GROSS --> NET[Net EV]
        FEES[Entry + Exit Fees] --> NET
        SLIP[Slippage Estimate] --> NET
        
        NET --> DECISION{EV > Threshold?}
        DECISION -->|Yes| TRADE[Execute Trade]
        DECISION -->|No| SKIP[Skip Opportunity]
    end
    
    style GROSS fill:#e8f5e9
    style NET fill:#fff3e0
    style TRADE fill:#c8e6c9
    style SKIP fill:#ffcdd2

Expected Value = (Funding Spread × Time Weight) - (Entry Fees + Exit Fees + Slippage)

Funding Spread: The rate difference between exchanges
Time Weight: Reduced value if close to next funding payment
Fees: Trading fees on both exchanges (entry and exit)
Slippage: Expected price impact

The bot only opens positions with positive expected value.

Pair Selection Strategies

The bot supports multiple strategies for selecting which trading pairs to monitor:

Arbitrage-Based Selection (Recommended)

Sort pairs by their current funding rate spread to find the best arbitrage opportunities:

[instrument_discovery]
enabled = true
use_loris_rankings = true
loris_sort_by = "arbitrage"    # Sort by funding spread (default)

How it works:

For each symbol, finds the exchange with the lowest rate (go long) and highest rate (go short)
Calculates the spread: short_rate - long_rate
Ranks symbols by spread size (highest first)
Prioritizes pairs with immediate profit potential

Best for: Active traders seeking maximum returns

Liquidity-Based Selection

Sort pairs by open interest rank to prioritize the most liquid markets:

[instrument_discovery]
enabled = true
use_loris_rankings = true
loris_sort_by = "oi_rank"      # Sort by liquidity

How it works:

Uses Binance open interest rankings as a proxy for liquidity
Lower rank = more liquid (BTC is usually rank 1)
Prioritizes easy entry/exit with minimal slippage

Best for: Conservative traders, larger position sizes

Volume-Based Selection

Sort pairs by 24h trading volume using direct exchange APIs:

[instrument_discovery]
enabled = true
use_loris_rankings = false     # Use exchange APIs

How it works:

Fetches 24h volume from each exchange directly
Ranks pairs by trading activity
No third-party data dependency

Best for: Traders who prefer direct data sources

Supported Exchanges

Exchange	Funding Interval	Max Leverage	Notes
Binance Futures	8 hours	125x	Most liquid
Bybit Perpetuals	4-8 hours*	100x	UTA required
HyperLiquid	1 hour	50x	24× daily funding
Aster Futures	4-8 hours*	125x	Per-symbol intervals

*Bybit and Aster funding intervals vary per symbol. The bot automatically fetches per-symbol intervals via API at startup, refreshes every 4 hours, and receives real-time updates from WebSocket streams.

Note: HyperLiquid's hourly funding means more frequent profit collection but requires different EV calculations.

Frequently Asked Questions

What happens if one exchange goes down?

The bot monitors connectivity and will:

Alert you to connection issues
Prevent new positions from opening
Existing positions remain open (both legs on different exchanges)

Can I lose money?

While the strategy is market-neutral, risks include:

Fee costs: If spread narrows before covering fees
Liquidation: If leverage is too high and price moves sharply
Exchange risk: Counterparty risk on centralized exchanges
Execution risk: Slippage during entry/exit

How much capital do I need?

Minimum recommended: $1,000 per exchange ($2,000 total)

With leverage, you can control larger positions:

$1,000 at 10x = $10,000 position size
Required margin = Position / Leverage + Safety Buffer

What's a good minimum spread to trade?

Conservative: 0.05% (5 basis points) - fewer trades, higher quality
Moderate: 0.04% (4 basis points) - balanced approach
Aggressive: 0.03% (3 basis points) - more trades, lower margins

How often are there opportunities?

This varies by market conditions:

High volatility: More funding rate divergence = more opportunities
Low volatility: Rates converge = fewer opportunities
Typical: 2-5 high-quality opportunities per day

Wealth Trading System - User Guide

Trading Strategy Guide

Overview

Strategy Flow

What Are Funding Rates?

How the Strategy Works

The Arbitrage Opportunity

Delta-Neutral = Market-Neutral

Visual Example

Profit Calculation Example

When Does the Bot Open Positions?

When Does the Bot Close Positions?

Risk Management Features

Delta-Neutral Protection

Slippage Protection

Trailing Stop Loss

Atomic Execution

Position Size Limits

Configuring the Strategy

Understanding Expected Value (EV)

Pair Selection Strategies

Arbitrage-Based Selection (Recommended)

Liquidity-Based Selection

Volume-Based Selection

Supported Exchanges

Frequently Asked Questions

What happens if one exchange goes down?

Can I lose money?

How much capital do I need?

What's a good minimum spread to trade?

How often are there opportunities?

See Also