Hedging
Hedging offsets the price exposure of one position with an equal and opposite position. The combined position holds its value as price moves, apart from basis and funding.
Live workspace
Cross-exchange spreads
Open spreads for the same coin across exchanges, with net funding and 24h volume for each pair of legs.
Funding rates
Live perpetual funding rates across exchanges, normalized to 8 hours, with the widest cross-exchange funding diff.
The two legs
The common form is a spot long hedged with a perpetual short. Perpetuals on two venues hedge each other the same way.
Entry, holding and exit
Entry: size both legs equally so net exposure is close to zero. Place the short leg where the funding rate and liquidity suit it.
Holding: keep the legs equal and watch the perpetual leg’s margin. The hedge holds only while both legs stay open.
Exit: close both legs together. Closing one leg alone leaves the other unhedged.
Hedge result and costs
A hedge offsets price exposure, but changes in the basis and the funding fee still move the result. Perpetual and spot prices do not move one for one, and when the funding rate flips, the position pays funding instead of receiving it.
Related reading: how hedged arbitrage earns and basis and spread convergence.
Key metrics
| Key metrics | |
|---|---|
| Leg gap | The quantity gap between the two legs. Any gap is open directional exposure. |
| Liquidation distance | How far price can move before a perpetual leg reaches liquidation. |
| Funding rate | Compare both legs normalized to one period, alongside each venue’s settlement period and rate cap. |
| Basis | The perpetual price minus the spot price, as a percentage of spot. |
Main risks
Imperfect hedge: Perpetual and spot prices do not move one for one. Basis changes and funding payments shift the hedge result.
Liquidation: Each perpetual leg holds its own margin. A sharp move can liquidate the losing leg while the gain sits on another venue and cannot cover it.
Funding reversal: Funding rates change every period. When the funding diff narrows or flips, the position pays funding instead of receiving it.
Leg gap: If one leg fills and the other does not, the position carries directional exposure until the leg gap closes.
Venue risk: Funds sit on two venues. Either one can halt withdrawals, suffer an API outage, delist a market or fail.
See the main risks of arbitrage for a fuller account.
Data in Z Market Lab
The funding rates page shows funding rates for every venue normalized to one period, so the short leg can sit where funding is favorable. Delisting notices are tied to the affected markets.
Execution in ZML Trade
Trade keeps both legs equal as one combo and reconciles them against the actual positions on the exchange. As the liquidation distance falls to the values you set, the combo stops opening, then alerts you and switches to reduce-only. liquidation guard is on by default: when the distance falls to the liquidation guard line, both legs are reduced at market. You can turn it off.
Risk controls explains each distance and reconciliation. Parameters covers the combo settings.