What Is Carry Trade?
A carry trade profits from the yield differential between two positions. In traditional finance, this means borrowing in a low-interest currency and investing in a high-interest one. In crypto, the most common carry trade is the funding rate arbitrage: going long spot while simultaneously shorting the same asset via perpetual futures, collecting positive funding payments.
How Carry Trade Works
The crypto funding rate carry trade works because perpetual futures often trade at a premium to spot during bullish markets. Long positions pay funding to shorts, typically every 8 hours. By holding a delta-neutral position (long spot + short perp), the trader earns the funding rate with minimal directional exposure. Annualized returns of 15-40% are achievable during trending markets.
Why It Matters for Traders
Carry trades are a core strategy for crypto market makers and funds because they provide consistent yield with defined risk. The main risk is basis convergence: if the premium collapses or goes negative, the carry disappears. Monitoring funding rate trends and basis spread is essential for timing entry and exit.
